Danske Mortgage Bank generated a peak €2.5bn book for a €500m no-grow five year covered bond today (Wednesday), with bankers viewing the outcome as reflective of the rarity of the issuer and Finnish supply, as well as the asset class’s status as a safe harbour in a soft credit market.

Following a mandate announcement yesterday (Tuesday), leads BNP Paribas, Danske, DZ, Erste and ING opened books this morning with initial guidance of the mid-swaps plus 3bp area for the €500m no-grow November 2026 issue, rated Aaa. After 35 minutes, they reported books above €1bn, excluding joint lead manager interest. After an hour and 20 minutes, guidance was revised to minus 1bp+/-1bp, will price in range, on the back of an order book above €1.7bn, excluding JLM interest. After an hour and 50 minutes, the spread was fixed at minus 2bp on the back of books above €2.5bn, excluding JLM interest, pre-reconciliation, and the final book was over €2.4bn.

Danske’s new issue is its first euro benchmark since January 2020 and only the third euro benchmark covered bond from Finland this year, and bankers at and away from the leads attributed the high level of demand to the rarity of the name and Finnish covered bonds in general. Lead bankers said the level of demand was surprising, even taking into account positive feedback after the mandate was announced yesterday.

“We’re certainly very pleased with the result,” said a lead banker. “We saw very large orders from investors thinking, I need to take this opportunity because it’s rare.”

A lack of five year supply this year was cited as a further factor in the deal’s success.

“It’s a maturity that suits investors well if you are worried about the rates outlook and the inflationary themes that are coming back into markets,” added the lead banker. “So the further in on the curve you come, the better your demand will be.”

Lead bankers put fair value in the context of minus 2bp-3bp, with a banker away from the leads calling it at minus 2bp, implying the deal came flat to fair value.

“The reason for this lower accuracy is because the issuer’s outstanding bond would point towards minus 2bp, while other more recently active Finnish issuers Sp Mortgage bank as well as OP Mortgage Bank would be a spot tighter,” said the lead banker. “However, it’s fair to say that the Finnish covered bond market is quite illiquid, given both ECB purchases and relatively little supply from that region.”

According to comparables circulated by the leads, the issuer’s November 2023s were quoted at minus 2.7bp, mid, on an i-spread basis, and its January 2028s at minus 2.5bp. OP’s November 2026s were quoted at minus 5.3bp and June 2027s at minus 5.2bp.

Syndicate bankers were quick to point out the resilience of the covered bond market compared to the bulk of the credit market, where senior and other deals have struggled.

“We know that, if anything, a covered bond is like a safe harbour from the rest of the softness we’re seeing in the market,” said a banker away from the leads. “It’s good that we continue to see covered bonds as a very viable option when it comes to issuers getting liquidity ahead of the year-end, whereas the other parts of the cap structure seem to be a lot more challenging in terms of execution, new issue premium paid, etc.”

Danske’s new issue is the second euro benchmark covered bond this week, after NIBC also bucked the wider trend yesterday with a successful €500m nine year CPT.