A EUR1.5bn seven year green debut for DNB Boligkreditt today (Tuesday) provided the clearest evidence of a “greenium” yet seen in euro covered bonds, said bankers, as it was priced flat to a smaller, shorter non-green deal for peer SpaBol yesterday while attracting some EUR800m extra demand.

A benefit in primary market pricing for green bonds versus conventional bonds has at times been cited in some asset classes, but in the euro covered bond market – where four green benchmarks had been priced prior to today – green deals have tended to be priced in line with conventional comparables, with CBBP3-influenced compressed spreads seen as a factor in this. Issuers and market participants instead pointed to benefits such as larger demand and greater momentum in bookbuilding.

However, syndicate bankers said today’s new issue for Norway’s DNB Boligkreditt offered more tangible evidence of such a green benefit in covered bonds.

“If you had asked me one year ago if there was a green pricing benefit in the covered bond market, I would have said no,” said a syndicate banker at one of DNB’s leads. “Today, I would say yes, we are getting there.

“It is a slow process and it is difficult to quantify, but we can see there is a green benefit in pricing just because the level of lines in the order book is getting bigger and bigger and subsequently the price sensitivity is diminishing. Alternatively, you have a benefit in terms of size – today we can see there was a bit of both.”

Leads Crédit Agricole, DNB, ING, LBBW and UniCredit launched the seven year issue with guidance of the mid-swaps plus 5bp area this morning. After around 50 minutes, the leads announced that books had surpassed EUR1bn.

The spread was subsequently set at 2bp with books over EUR1.8bn, excluding joint lead manager interest, before the size was set at EUR1.5bn with books above EUR2bn at re-offer, including EUR40m JLM interest, with over 100 accounts participating.

“It is one of the best deals we have had in the covered bond market for a while,” said a syndicate banker away from the leads.

The deal comes after compatriot SpareBank 1 Boligkreditt (SpaBol) priced a EUR1bn five year conventional covered bond at 2bp yesterday (Monday) with a final book of over EUR1.2bn.

“The momentum around the two trades was completely different,” said the lead syndicate banker. “We are closing books above EUR2bn and printing EUR1.5bn – we could have done more.

“The difference between the two is not only the strong funding franchise of DNB but obviously also the green element, which was instrumental here in terms of momentum, the level of granularity of orders and the absence of sensitivity to the price. It felt like no one could afford to miss out on this one.”

Syndicate bankers noted that the covered bonds of DNB and SpaBol tend to trade in line, although some said that based on the profiles of the issuers DNB’s should trade tighter than those of its smaller compatriot.

Bankers said DNB’s deal paid a new issue premium 3bp-4bp, seeing DNB November 2024s at minus 2bp, mid, and September 2026s at minus 1bp, pre-announcement. They noted this was slightly less than the 5bp new issue premium paid by SpaBol yesterday and by comparable conventional covered bonds issued last week.

“It seems investors were willing to sacrifice a bit of yield for the green element,” said a syndicate banker.

However, a syndicate banker away from the leads agreed that the green element of the deal “definitely helped”, but suggested that DNB would have been able to print an almost as impressive deal without the support of green investors.

“If you’re getting a EUR2bn plus book, it is not like EUR1.5bn of that is going to be coming from pure green investors,” he said. “I think they would have gotten pretty close to this result anyway – maybe only the size would have been slightly smaller.”

The deal is the second green covered bond from Norway, following a EUR1bn seven year issue for SpaBol in January. The green SpaBol January 2025s were seen trading at minus 1.5bp, mid, before DNB’s deal was announced yesterday.

The lead syndicate banker estimated that DNB’s final spread of 2bp was also “not too far away” from where an equivalent French covered bond would have been priced today. The last benchmark French covered bond in the intermediate part of the curve was a EUR1.25bn eight year for CFF, which was priced at 3bp over mid-swaps on 22 May.

“The pricing differential between CBPP3-eligible and non-CBPP3-eligible paper is just vanishing extremely quickly now,” he said. “We have a market that is at the moment clearly driven by fundamentals.”

DNB Boligkreditt unveiled its green bond framework on 29 May. Its framework is similar to that of SpaBol, with both having been influenced by feedback from the Climate Bonds Initiative.