Swedbank Hypotek achieved what is said to be the tightest level on a Nordic covered bond in five years when it launched its first euro benchmark since August 2011 yesterday (Thursday) and encountered strong demand for the Eu1bn seven year transaction.

The deal was re-offered at mid-swaps plus 13bp, which, according to Jez Walsh, global head of covered bonds at RBS, makes it the tightest Nordic covered bond since April 2008, as well as Swedbank’s tightest jumbo. And he said that the deal had already performed, tightening from 13bp to 11.5bp bid yesterday afternoon.

“This further demonstrates that the lack of new supply continues to drive the market,” said Walsh, “creating a phenomenal response to new transactions.”

Leads Danske Bank, LBBW, RBS, Société Générale and Swedbank went out with initial price thoughts of the high teens, before offering guidance of the 15bp over mid-swaps area, and then fixing the spread at 13bp. Bankers at and away from the leads said that although IPTs were quite generous, the strategy was sensible. The eventual new issue premium was put at 1bp-2bp.

‘‘We knew there was a good deal on the table with the right timing and correct execution, but the outcome of the deal exceeded our expectations in terms of investor response,” Ulf Jakobsson, head of funding and liquidity at Swedbank, told The Covered Bond Report. “We had a very strong order book, well over Eu3bn, and around 160 accounts involved.’’

A lead syndicate official said that the level of oversubscription – with orders totalling Eu3.3bn after two hours of bookbuilding – was the highest for a Swedish covered bond.

Factors contributing to the strong outcome of the deal included good market conditions and limited supply from the Nordic region, according to Jakobsson, with another being the release of quarterly result on Tuesday.

“After the release of our results we saw a very positive development in the secondary market of our outstanding senior bonds,” he said. “The high number of accounts involved in the transaction is also an acknowledgement of all our efforts in the investor relations field.”

Fund managers took 37%, banks 35%, central banks and SSAs 23%, insurance companies 4%, and others 1%. Germany and Austria were allocated 40%, the UK 15%, the Nordics 14%, Asia 12%, the Benelux 8%, France 4%, Switzerland 3%, and the rest of Europe 4%.

The new issue came after Swedbank tapped the dollar covered bond market on March 26 with a $1bn five year issue. Jakobsson said that the new issue will most likely be the only euro covered bond from Swedbank during 2013.

“This transaction, together with our US dollar transaction, covers most of our needs outside the domestic Swedish krona market,” he said.

Yesterday’s euro came with a premium of approximately 3bp versus the domestic Swedish krona market.

“The euro market is important for us and it’s a premium we are willing to pay” added Jakobsson.