Stadshypotek sold the first Swedish and tightest non-Eurozone euro benchmark in almost 18 months today (Tuesday), a €1bn eight year transaction backed by a Norwegian pool, and bankers said the pricing contributed to a relatively modest €1.35bn-plus book.

The Svenska Handelsbanken subsidiary last tapped the euro market in March 2019, and the new issue is the first Swedish euro benchmark since SCBC launched a €500m 10 year deal in May 2019.

The new issue is Stadshypotek’s first transaction in euros to be issued against assets from its Norwegian cover pool.

After a mandate announcement this morning, Stadshypotek leads Crédit Agricole, HSBC, Nomura and Svenska Handelsbanken went out with guidance of the mid-swaps plus 8bp area for an eight year euro benchmark-sized transaction. After around an hour and 35 minutes, books were reported as being over €1bn, excluding joint lead manager interest, and after around two hours and 50 minutes, the spread was set at 5bp, on the back of over €1.35bn demand, including €50m JLM interest. The issue was ultimately sized at €1bn.

A lead banker said that while demand was not overwhelming, the pricing at 5bp represented the tightest level for a non-CBPP3 eligible euro benchmark in 18 months.

“It’s also an eight year,” he said, “so I think it’s a cracking result.”

The issuer opted to launch a euro-denominated covered bond given the high level of overcollateralization of its Norwegian cover pool, and the longer duration available in euros than in Norwegian kroner.

“And the curve is very flat in euros,” he added.

A syndicate banker away from the leads noted that the level was attractive versus where Stadshypotek trades in its domestic market, but said the nature of the cover pool arguably made the new issue more comparable to Norwegian covered bonds than Swedish issuance.

“They’re issuing from a non-domestic cover pool,” he said, “which some other Nordic banks also do, so I’d call this a Norwegian covered bond.”

He said that while the outcome was respectable, demand was slightly disappointing, suggesting the pricing may not have been deemed hugely attractive versus Norwegian paper, which typically trades wider than Swedish paper.

“There must have been some price sensitivity leading some investors to not play at all,” he said. “Christmas has not come early for investors, that’s for sure.”

He highlighted a 2027 issue from Norwegian national champion DNB Boligkreditt that was launched on 1 October and was today at 6bp.

“The only way that Stadshypotek’s trade could be inside that is because of the issuer name,” he added. “The collateral itself would have pointed more towards a 7bp or 8bp finish.”

Stadshypotek’s strategy of starting at 8bp and moving to 5bp – 1bp inside DNB – had nevertheless succeeded, according to the syndicate banker.

Another banker away from the leads said the pricing may have been perceived as too close to the tightest Pfandbrief issuers, deterring some German investors from participating and leading to a more modest oversubscription level relative to recent transactions.

“Fair value based on Stadshypotek’s own curve is plus 3bp,” he said, “but would this actually be achieved when you have a recent DZ Hyp eight year at 1bp? I’m not so sure.”

The new issue is the first euro benchmark since last Thursday, when fellow Nordic but CBPP3-eligible OP Mortgage Bank sold a €1.25bn 10 year transaction at 5bp over.

A syndicate banker said while a handful of issuers are considering issuance, the primary market could slow even further after today’s deal in the run-up to the Christmas holiday.

“It indicates that not everyone and their brother is chasing covered bonds at any price,” he said, “so I wouldn’t be surprised if these issuers simply push it into next year.”

Oma Savings Bank today concluded marketing for a euro sub-benchmark seven year transaction, previously announced with a five year tenor, and is expected to hit the market tomorrow (Wednesday), subject to market conditions.

Danske, LBBW and Swedbank have the mandate.