OP Mortgage Bank attracted over EUR2.8bn of demand to a EUR1.25bn 10 year deal today (Friday), allowing it to tighten pricing 5bp and get an “impressive” result for only the second euro benchmark so far this month, and supply is expected to pick-up, with the market remaining ripe for new issuance.

Leads LBBW, Nomura, OP Corporate Bank and SG went out with guidance of the 15bp over mid-swaps area for the 10 year Finnish euro benchmark and in less than an hour and a half the books were above EUR2bn, excluding EUR50m JLM interest. After around two and a half hours guidance was revised to 11bp+/-1bp, WPIR on the back of books above EUR2.8bn, and shortly afterwards the spread was set at 10bp and the size at EUR1.25bn.

Bankers at and away from the leads said that OP’s outstanding covered bonds trade tight, with a flattish curve, and therefore were not a good guide to fair value – the Finnish bank’s longest dated outstanding, a June 2027s issue, was quoted at an i-spread of 4.5bp, mid, as was its September 2025.

A lead syndicate banker said fair value for a new Nordea 10 year would be around 8bp – its March 2027s were at 5bp and February 2033s at 13.5bp – and given that OP tends to pay a pick-up over its compatriot, the 10bp re-offer spread reflected a new issue premium of perhaps 1bp.

A banker away from the leads pointed to a EUR2bn Rabobank 10 year issued on 24 January, noting that this was quoted at 9.5bp, after having been issued at 15bp.

“OP started at 15bp and ended up at 10bp,” he said. “I think they had Rabobank in mind, but didn’t expect to end up at 10bp, or they would probably have started at around 13bp.

“It’s quite impressive what they managed to do, with the EUR2.8bn book,” he added. “It is yet another deal that shows the covered bond market to be in insanely good shape.”

The lead syndicate banker said that even though markets were a little weaker yesterday, MünchenerHyp had been able attract over EUR450m of demand to a EUR250m no-grow tap of a November 2027 mortgage Pfandbrief at the tight end of 4bp+/-2bp guidance, while away from covered bonds Bankia could sell a EUR1bn Tier 2 issue on the back of over EUR3.25bn of orders with a new issue premium of 20bp or less.

“This showed how good the market still is and we decided to move ahead even if today is a Friday,” he added, “and that was the right decision.”

He said 10 year paper continues to be in demand, noting that, for example, a EUR1bn 10 year Länder issue had been two and a half times oversubscribed yesterday, when such issues sometimes struggle to be subscribed.

OP Mortgage Bank’s issue is the first Finnish euro benchmark of the year. The tightest 10 year benchmark this year was a EUR500m no-grow Pfandbrief for BayernLB on Monday of last week (28 January), which was sold at 8bp over.

OP approached the market after announcing its results on Tuesday and, after only two benchmarks this week, bankers expect supply to pick up next week, as more banks exit blackouts and market conditions remain so attractive. Caffil has finished a roadshow for its inaugural social bond and is the only publicly-announced transaction in the pipeline for next week.

TSB issued £500m (EUR570m) five year Sonia-linked issue today after having pulled a transaction after launch in November as the market was hit by Brexit developments. This time the UK lender was able to attract some £1.2bn of demand to its inaugural Sonia-linked trade, and tighten pricing from 93bp over to 87bp, via Lloyds, NatWest, Nomura and Sabadell. Santander UK last Friday priced a £1bn five year Sonia-linked FRN at 73bp over.