Danske Hypotek took “a very strong first step” into the Swedish covered bond market with a Skr5bn (Eu526m) debut issue on Tuesday that attracted Skr20bn of demand, according to Danske’s head of group treasury, who sees potential for the issuer to grow to as much as Skr80bn-Skr100bn of outstandings in three to four years.

Danske announced plans to establish a new Swedish mortgage bank to issue covered bonds backed by Swedish mortgages under Swedish law in February 2016. It held meetings with investors this March while transferring Swedish mortgages to the new entity, and announced that it had received the relevant regulatory approvals to issue from the Swedish FSA in June.

“We wanted this transaction to establish Danske Hypotek as a benchmark issuer in the Swedish market,” Christoffer Møllenbach, head of group treasury at Danske Bank, told The Covered Bond Report. “The Swedish market is a very deep and liquid market, and one that is very focussed on liquidity, so we spent a lot of time making sure that we had the right market maker setup and support, in addition to setting up the legal structure.

“I think this trade is a very strong first step in that process.”

Leads Danske Bank, Handelsbanken, SEB, Nordea and Swedbank launched the 1% December 2022 deal (DH2212) on Tuesday morning with guidance of 33bp-35bp over mid-swaps. Guidance was later revised to 32bp-33bp, will price within range, for an expected deal size of Skr5bn, on the back of over Skr20bn of orders. The spread was then set at 32bp and the size at Skr5bn.

“We had more than Skr20bn of orders, and given the deal size was set at Skr5bn, that enabled us to tighten the pricing and have a very solid benchmark,” said Møllenbach. “We are very happy with this as our first benchmark in the Swedish market.”

Pension funds and insurance companies bought 32% of the deal, banks 23%, asset managers 20%, central banks and official institutions 20%, and corporates 5%. Accounts in Sweden were allocated 51%, Denmark 22%, Norway 10%, Finland 5%, and non-Nordics 12%.

Møllenbach said the final spread was at the tighter end of the issuer’s expectations, adding that the deal offered a “fair” pick-up of a couple of basis points versus the curves of more established Swedish issuers.

Charlotte Asgermyr, chief covered bond and FI market strategist at SEB, said the deal was priced flat to the Z-spread curve of LF Hypotek – the last new entrant to the Swedish market – and 1bp wider than the Z-spread curve of the more established Swedbank Hypotek.

Danske Hypotek has said it will be a regular issuer in the Swedish market and will prioritise building a liquid benchmark curve.

“We don’t have a calendar per se,” said Møllenbach, “but we do have an expectation that in the next three to four years we will grow very substantially, potentially to Skr80bn-Skr100bn of outstandings if the market demand is there.”

“We want to make sure we are able to supply the liquidity that is required to really become one of the core benchmark names in this market.”

Photo: Danske office, Stockholm; Credit: Danske/Philipp Gallon