Sp Mortgage Bank sold its first benchmark covered bond today (Tuesday), using a reprieve from rates volatility and adopting a somewhat defensive approach to attract over Eu800m of orders to a Eu500m five year that was deemed a good start for the Finnish issuer given recent travails.

Today’s deal is the first benchmark covered bond to be launched since half a dozen deals across the first three days of last week, with rates volatility having muted the market in the meantime while the six new issues widened after achieving mixed results at launch. After a stable session yesterday, bankers said the outlook was brighter this morning, with yields tightening 3bp-4bp in core Europe and 6bp-9bp in the peripherals this morning.

“This is the first time for three or four days that we’ve actually seen a stable to positive open across the board, with things looking good in terms of equities, sentiment on the credit side, and rates,” said a banker away from the new issue. “If you were hoping to do a debut covered bond and watching time tick away to the end of the year, this was the kind of start you’d have been hoping for.”

Sp Mortgage Bank leads BNP Paribas, LBBW and Nordea launched the Eu500m no-grow five year issue with guidance of the 5bp over mid-swaps area this morning. Just over an hour after the books were opened, the leads announced that demand had surpassed Eu600m. The spread was then fixed at 2bp with books above Eu800m. The final book stood around that level, including over 50 accounts.

“In the end this is a good start for a new, small issuer, especially given it is the end of the year and liquidity is naturally decreasing,” said a syndicate banker at one of the leads. “The issuer wanted to make it a strong success in their first approach, to avoid squeezing the price too much, and that is what they have been communicating to investors throughout the whole process.

“That approach paid off today.”

The lead syndicate banker said there was a “very good hit rate” in terms of reaching investors who participated in the roadshow, and noted there had been less price sensitivity in the book than in deals priced last week.

Bankers disagreed on precisely how much of a concession the deal offered, but noted the deal had come substantially wide of recent Finnish supply and the secondary levels of more established issuers.

On Monday of last week (14 November), Nordea Mortgage Bank priced a Eu1bn seven year issue at 8bp through mid-swaps. The deal, the first benchmark from Nordea’s newly established Finnish issuing entity following the demerger of Nordea Bank Finland, was quoted 1bp wider this morning.  Nordea Bank Finland and OP Mortgage Bank 2021s were seen at minus 9bp, and 2022s from the two issuers at minus 7bp.

A new five year benchmark for Nordea or OP would likely be priced at around minus 7bp, the lead syndicate banker said, suggesting that the credit differential between the more established issuers and Sp Mortgage Bank is worth around 5bp.

“Therefore I think you can say this offered 4bp concession, maybe 5bp at most,” he said.

Syndicate bankers away from the leads said the credit differential is smaller, and put the premium at closer to 7bp.

“It looks a little cheap, but they’ve been on the road and will have had a good idea where the anchor orders were,” said one. “I’d assume they were just looking to get their first deal done while minimising execution risk, and in that case, this was the right starting number.

“It was also fairly punchy in terms of the second move, in terms of setting the spread 3bp tighter straight away.”

The deal is the first benchmark from Sp Mortgage Bank, the recently-established covered bond funding vehicle of the Finnish Savings Banks Group.

The new issue is the shortest new euro benchmark covered bond since 10 June, when Bank of New Zealand sold a Eu750m June 2021 issue. On 1 June, SR-Boligkreditt and Dexia Kommunalbank Deutschland both sold September 2021 issues – the last five year benchmarks from Europe.

“The five year is a more defensive trade and it is the right option for debut issuers at the moment,” said a banker. “That part of the curve is heavily undersupplied and does look fairly attractive, given that five year rates have gone up 15bp over the last couple of months.

“But for other issuers, I think seven years is still the sweet spot.”