SR-Boligkreditt issued the first Norwegian covered bond of the year today (Monday), a €500m transaction that drew over €900m of demand at a level roughly flat to SpareBank 1 Boligkreditt and extended the Norwegian issuer’s curve out to 10 years.

After announcing the mandate this morning, leads JP Morgan, LBBW, Natixis, Nordea and Santander went out with guidance of the mid-swaps plus 13bp area for the 10 year euro benchmark-sized transaction, and after around an hour and 10 minutes, reported books over €1bn, including €50m joint lead manager interest. After around two hours and 10 minutes, guidance was revised to 9bp+/-1bp, WPIR, on the back of over €1.2bn orders, including €50m JLM interest, and the spread was ultimately set at 8bp and the size at €500m (NOK5bn) on the back of over €900m of demand, including €50m JLM interest, good at re-offer.

Today’s deal is the longest-dated euro benchmark issued by the SpareBank 1 SR-Bank subsidiary. It has previously only issued as far out as seven years, most recently in October 2019 with the first under a green bond framework that was also the first negative-yielding euro benchmark from the Nordics.

Maureen Schuller, head of financials research, ING, said the curve extension is yet another example of an issuer opting for a maturity bucket where yields just make the crossover into positive territory – in this case, offering 0.027%.

A syndicate banker at one the leads confirmed that the marginally positive yield was a driver for the choice of maturity.

“Norwegian cover pools tend to be a bit shorter,” he said, “the sweet spot previously being seven years. So this, as the first Norwegian covered bond of 2020, expands the Norwegian curve into the 2030s.”

The last euro benchmark from a Norwegian issuer was a €1bn 10 year from SpareBank 1 Boligkreditt (SpaBol) in October 2019.

A syndicate banker away from the leads said the transaction represented a “super-solid” outcome for the issuer, from both a relative spread and yield perspective.

“Negative interest rates aren’t necessarily an issue for the majority of bulk buyers,” he said. “Nonetheless, if you want to have some incremental demand from the real money guys, going out with a positive yield for a 10 year is obviously a good decision.”

He noted it also offered a significant pick-up versus CBPP3-ellgible bonds from France, Germany and the Netherlands, and that its success could trigger more Nordic issuance in the near future.

“For those that want to grab whatever basis points they can before we see even more compression going forward,” he added, “this was a very nice trade to partake in, and considering how it’s gone, we could now see more issuance from the region.”

Syndicate bankers away from the leads saw fair value at 8bp-9bp, based on SpaBol January 2029 and November 2029 paper at 5.5bp and 8bp, mid, respectively, implying a maximum 1bp of new issue premium.

“They are typically 2bp wider than SpaBol and DNB Boligkreditt,” said one, “so I’d say fair value is around 9bp, though I would not have been surprised if they had landed at 10bp with this one.”

A syndicate banker at one of the leads said it priced flat to fair value, based on either its own or SpareBank 1 Boligkreddit’s curve.

“In the past it has priced with a slight pick-up,” he said. “Looking at it today, the outcome is fairly flat to its peers – so this is why we think it’s a good result.”

He said that the book size of over €900m was significantly less than the €3bn achieved for the last euro benchmark, a €1.25bn 10 year from ING Belgium on Thursday, but noted that CBPP3-ineligible SR-Boligkreditt does not receive the typical Eurosystem bids for 40% of new issues.

“Furthermore,” he said, “the Norway sovereign wealth fund cannot buy into any Norwegian issuer, so this constitutes to some loss of size in that respect, and it is unfair to draw direct comparisons.”

He said there was some price sensitivity on the final basis point and that the issuer could have opted for a €750m print.

“We would have loved to have gone larger, but it would have been a stretch,” he said, “so ultimately, it was the right decision from the issuer to go with the 8bp landing and print a solid €500m.”