Nordea took advantage of a quieter but still buoyant euro covered bond market on Wednesday to sell a €1.75bn dual-trancher, with the seven year piece offering welcome duration, and a rare three year FRN diversification, Petra Mellor and Christian Peschel told The Covered Bond Report.

Although many banks, including group parent Nordea Bank Abp, are in blackouts, Nordea is able to issue covered bonds during silent periods, including via Nordea Mortgage Bank in Finland.

“And because of the strength of the covered bond market, we have been active already so far this year,” said Mellor, head of bank debt, long term funding, at Nordea, “issuing both a large benchmark covered bond in Norwegian kroner from our Norwegian entity, and earlier this week from our Swedish subsidiary in Swedish kronor. We decided to monitor the euro covered bond market closer as well, because it has surprised us a little bit to the upside in terms of investor appetite.

“Given continued strong market conditions,” she added, “we decided to pull the trigger yesterday and we are very pleased with the result.”

Benchmark-sized floating rate syndicated covered bonds remain rare in euros, with only a handful issued in the past decade – although the last was relatively recently, a €750m three year issued by Toronto-Dominion Bank in August 2023 alongside €1.5bn fixed rate three year and €1bn eight year tranches.

“In recent weeks, there has been a very deep bid for floating rate in the unsecured market, especially in the short part of the curve,” said Peschel, treasury manager, Nordea.

With three month Euribor currently higher than the three year swap rate, the coupon on the FRN was more than 1% higher than what would have been available on a fixed rate benchmark in the same tenor.

“The floating format is clearly something investors want right now,” added Peschel, “so we were happy to offer them this innovative format, which at the same time offers some diversification for us.”

Nordea raised €1bn in the three year maturity last August in the typical fixed rate format, but found that some three-quarters of the €1.35bn order book for the FRN was different to that fixed rate benchmark, with a strong bid from the Nordics, for example.

“We were pleased to see how many orders it had,” said Mellor, “including new investors that we had not seen in our three year order book before, who wouldn’t normally buy a fixed rate covered bond from Nordea but were keen to buy an FRN.”

Nordea was meanwhile happy to see the long end of the market open after having been closed for the second half of last year. As well as its three year in August, the issuer sold a €1bn five year in October, after having sold a €1bn seven year back in February 2023.

“It is good to see that the longer end of covered bond issuance has opened up,” said Mellor. “We noted recent transactions where the books were strong, with asset managers, pension funds and insurance companies willing to buy seven years and beyond.

“When we saw this appetite, we thought that a seven year would enjoy a strong reception from the market, which it did.”

Leads Crédit Agricole, Deutsche, HSBC, Natixis, Nordea and UBS opened books with initial price thoughts of the three month Euribor plus 25bp area for the January 2027 FRN and the mid-swaps plus 41bp area for the January 2031 fixed rate tranche, both for euro benchmark sizes and with expected ratings of Aaa.

After around an hour and 50 minutes, the leads reported books above €3bn, skewed towards the fixed rate tranche and including €500m of joint lead manager interest. After around three hours, the pricing of the three year tranche was set at 20bp and the size at €750m, and the seven year at 35bp and €1bn, on the back of books above €3.7bn, with the final order books good at re-offer above €1.35bn (including €275m of JLM interest) and above €1.80bn (€225m), respectively.

A syndicate banker at one of the leads saw a pricing advantage for the floating rate tranche compared to a fixed rate alternative, and a 1bp premium for the seven year fixed, where fair value was seen at 34bp. According to pre-announcement comparables circulated by the leads, Nordea 3.5% August 2026s were at 13bp, mid, its 3.625% October 2028s at 27bp and 3% February 2030s at 34bp, while TD 3.765% September 2026s were at 30bp and its September 2026 FRN at a discount margin of 31bp.

Mellor said Nordea usually raises some €20bn-€25bn of long term funding annually, around half of it in Scandinavian markets, mainly via its local mortgage subsidiaries in covered bond format, and the other half in international markets, comprising covered bonds out of the Finnish mortgage subsidiary and senior preferred and non-preferred instruments from the mother company.