Although several EU banks have issued EuGBs since the Netherlands’ ABN Amro became the first financial institution to do so in February 2025, none had yet issued an EuGB in covered bond format. Some have noted the greater differential in execution – in terms of greenium, for example – achievable in unsecured green bonds, while the availability of appropriate assets and potential additional reporting requirements have been cited by others as a reason they have not issued EuGB covered bonds.

Nordea Mortgage Bank, the group’s Finnish covered bond issuer, previously sold three euro benchmark covered bonds under the Green Bond Principles (GBP) managed by ICMA, most recently a €750m three year in March 2025, while the group’s other Nordic covered bond issuers have similarly tapped local currency markets.

Keil, head of covered bonds at Nordea, said the banking group wanted to demonstrate its leadership in sustainable finance through the issuance of the first EuGB covered bond.

“We see ourselves as the leading sustainable issuer in the Nordics and want to remain at the forefront of developments,” he said. “This first ever EU Green Covered Bond and first EuGB from a financial institution in the Nordic region is a testament to that role and that ambition.

“Being an early adopter of EU regulation also shows our support for EU efforts to transition to the low carbon economy,” he added. “We haven’t yet seen where EuGBs will end up, but we are willing to push forward and lead the way in this area, to help strengthen their credibility and minimise the potential for green-washing.”

The additional requirements of EuGB regulation have contributed to only gradual take-up of the format by financial institutions so far, and Keil testified to the work the format involves.

“With a big team effort across the organisation,” he said, “we have spent a lot of time internally in establishing a truly robust internal set-up on processes to screen and select Taxonomy-aligned assets, and also meet the requirements on impact and allocation reporting as well as attain validation by our external reviewer. In EuGBs, we have stronger supervisory oversight compared to a traditional ICMA bond, and it is reflected in a robust internal governance.”

Nordea published the associated (six page) factsheet, which is required for EuGBs, on Monday, alongside a pre-issuance review from ISS confirming alignment with EuGB regulation and the EU Taxonomy. The factsheet notes that the EuGB also meet the GBP.

The proceeds from the bond will be used to refinance a Finnish portfolio of Taxonomy-aligned retail mortgages that support energy efficient housing. The portfolio is broadly similar to that eligible for the bank’s previous green bonds, even if EuGB requirements are stricter.

Nordea’s deal hit the market after the first two days of the week passed without any financial institutions supply in euros on the back of the latest bout of volatility, particularly evident on Monday. Improved sentiment on Tuesday nevertheless encouraged issuance in other asset classes and currencies, and on Wednesday, alongside Nordea, Australia’s Westpac sold a €1bn short five year covered bond, with further FIG supply in senior and even AT1 formats. The two covered bonds were the first new euro benchmarks in the asset class since Tuesday of last week (17 March).

“Our ambition has over the last years been to come with a green covered from each of our four mortgage companies each year as part of our sustainable issuance ambitions,” said Keil (pictured). “With that in mind, we decided to proceed with this after seeing the relatively constructive tone yesterday.

“The three year tenor meant that the offering was already on the defensive side, and it’s also a good spot on the curve currently,” he added, “but then the green format, and furthermore the EuGB format, makes it stand out more in a market like this.”

Leads Crédit Agricole, Deutsche, DZ, Nordea and SG opened books with initial guidance of the mid-swaps plus 16bp area for a euro benchmark-sized April 2029 issue, expected rating Aaa. After around two-and-a-quarter hours, they reported books above €1.25bn, including €100m of joint lead manager interest, and an hour later, the spread was set at 11bp for a €1bn size on the back of books above €1.4bn. The final book was above €1.37bn, including €100m of JLM interest, with around 50 accounts participating.

“We saw a positive opening of the market, but you never know these days, so we went into this aware of the volatility and headline risk,” said Keil. “But from the get-go we saw that the book was building well, and we were able to land at a very good level.”

The spread of 11bp over mid-swaps is the tightest on a euro benchmark covered bond since October 2023, when Germany’s LBBW sold a €500m three-and-a-half year public sector Pfandbrief at the same level.

“That goes to show how the resilience of the euro covered bond market amid volatile markets,” said Keil, “but also how this is reinforced by the addition of a green or EuGB label to an issuance.”

Around three-quarters of the deal was allocated to investors with strong sustainability commitments or ESG-dedicated funds, according to the issuer and leads’ classification, which Keil said was overwhelming.

“We were absolutely happy with the level of interest and the fact that we saw so many dedicated ESG investors,” said Keil. “That share is much larger than on our previous green bond issuances in traditional ICMA format, suggesting that this EuGB format can reach a broader range of investors.”

Banks and private banks took 55%, asset managers 24%, central banks and official institutions 10%, insurance companies and pension funds 7%, and corporates 4%. Germany, Austria and Switzerland were allocated 54%, the Benelux 23%, France 12%, the Nordics 6%, Italy 3%, and the UK and Ireland 2%.

The leads put the new issue premium at 2bp and claimed a greenium of 1bp, although Keil acknowledged that this was hard to assess in current markets.

“Again, we see less greenium in covered formats than in senior and subordinated, so this was in line with what we expected, rather than any sudden improvement on this EuGB,” he added. “And maximising greenium is not the underlying motivation for using the EuGB format.”

Having debuted in the format, Nordea expects to stick with it, even if GBP green bonds are expected to co-exist with EuGBs for the foreseeable future.

“We have done this because we believe in the format,” said Keil, “and we believe there is a future here. Our intention is not to do it once and then go back to issuing in ICMA format.

“It will depend on how the market evolves and how issuance is received, but based on yesterday’s deal, there is clearly an interest among investors, so, all else being equal, we will probably pursue the path of EuGBs going forward.”

As well as covered bond issuance in local currencies from its other issuers in Denmark, Norway and Sweden, Keil said Nordea could also consider unsecured EuGBs.

Participants in the roundtable, which was held on 20 August (left to right in photo):
- Neil Day, Managing Editor, The Covered Bond Report, and moderator
- Matthias Ebert, Head of DCM FIG Origination, DZ BANK
- Christian Bech-Ravn, Head of Rating & IR, Jyske Realkredit
- Morten Keil, Head of Covered Bonds, Nordea
- Arve Austestad, CEO, SpareBank 1 Boligkreditt
- Sanna Eriksson, Head of Investor Relations, OP Financial Group, CEO, OP Mortgage Bank
- Sverre Holbek, Portfolio Manager, Asgard Asset Management

You can download a pdf of the roundtable here.

Neil Day, The Covered Bond Report: We’ve just seen a couple of post summer euro benchmarks from two of you, but we’ll start off by looking at how the overall market has been developing before quickly zooming in on Nordic supply. Matthias, how has euro benchmark issuance and, within that, Nordic supply developed, versus expectations and in itself?

Matthias Ebert, DZ BANK: At the beginning of the year, the overall mood was in favour of investments in the US, with Europe’s economic outlook a bit weaker and German elections to come in February — so a great deal of uncertainty. And in the fourth quarter of 2024, we had witnessed a sell-off in sub-sovereigns and agencies, so in relative terms, euro covered bonds did not look too attractive. Meanwhile, senior-covered bond spreads were very tight. So while some people expected the usual January, others said that this year would be different. And indeed, it turned out to be different, in particular because issuers decided to go for senior rather than covered in the first quarter. Nonetheless, primary market dynamics were very favourable for covered bonds, with oversubscriptions on average around four times, and new issue concessions less than 1bp. But most issuers opted for the riskier product, and until April we saw a very slow primary market in euro covered.

Liberation Day changed that. Senior spreads moved wider. Covered bonds suddenly became more attractive. Since then, we have caught up in terms of volumes. At some point in March, supply was 30% behind the corresponding 2024 period; we are now almost flattish to last year.

Looking at the Nordics this year, supply has surprised to the upside, with total euro benchmark supply of €18bn — Norway with €9.25bn, Sweden €4.5bn, Finland €3.25bn, and Denmark €1bn — overall a significant uptick versus last year. But if you look at net supply, it is only slightly positive.

Spreads over the year have moved significantly tighter: we are now at 37bp in the triple-A covered bond index — that’s 15bp of performance since the beginning of the year. Scandis are 12bp tighter, so a very good performance. Many of the individual covered bond indices — such as the Nordics, Netherlands — are very close to the lows seen in 2024. And over the summer, we saw a very strong dip in credit spreads, minus 5bp, more than the 1bp-2bp of tightening we have typically seen over a number of years.

Post summer primary market statistics read very favourably: in the first week back, new issue concessions averaged 1.3bp and oversubscriptions 2.3 times — very much in line with what we saw after the 2024 summer break.

Sverre Holbek, Asgard Asset Management: Covered bonds indeed sold off together with the SSA complex during the latter part of 2024, and while we were a bit cautious, at the beginning of the year we had the view that covered bonds looked quite attractive — five year Pfandbriefe at a spread of around 50bp vis-à-vis the sovereign, for example, and also the tight spreads between senior and covereds, as Matthias mentioned. So we thought that covered bonds looked quite attractive and overall that has proven to be a good call for us, so from that perspective, it’s been a good year.

We are perhaps a bit surprised at how fast things moved, especially over the summer, where we’ve seen some jurisdictions really tighten a lot, including some of the smaller ones, CEE for example. That, of course, now leaves the relative value proposition quite different than it was at the beginning of the year.

Day, The CBR: Turning to the issuers, looking at your deals chronologically, they somewhat tell the story of what’s happened so far this year. Christian, Jyske provided half of the Danish supply mentioned by Matthias and did so at the end of January with a €500m (DKK3.7bn) four year deal. Was this and the state of the market in line with what you had anticipated? And how does it fit in with Jyske’s wider activity?

Christian Bech-Ravn, Jyske Realkredit: Actually, one of the two Danish benchmarks was from Danske Bank out of their Finnish pool, so we only had one covered bond out of a pool with Danish collateral this year and this came from Jyske Realkredit.

Conditions looked very good in January. In particular, in the first couple of months of the year there was very strong interest from investors. We saw great interest right from the start of our transaction — we announced that we were only looking for €500m and ended up six times oversubscribed.

In general, like other Danish mortgage banks, we do the majority of our funding in the Danish krone market, where we do not have as much flexibility — as a Danish mortgage institute, we always need to be fully funded in covered bonds: basically, if we grant a loan today, we will issue into the DKK covered bond market today. We can always fund ourselves in the Danish krone market and hence we monitor the euro market to see when it is attractive, especially if we want to lengthen some of our funding. Our strategy is to issue a euro benchmark covered bond at least once a year.

As a Danish mortgage institute, we ourselves cannot use senior funding for funding of mortgage lending, but we look at issuance strategy on a group level, and this year the plan was to first issue Jyske Bank senior debt. In line with this, we did a green senior non-preferred from the bank, which went very well, and then we turned to the covered bond issuance.

Day, The CBR: Morten, Nordea was next, in March, by which time markets had moved on. You went for quite a short maturity and the green format, and did so not long before Liberation Day (2 April) but after the German debt brake developments. What was the thinking in all that?

Morten Keil, Nordea: Very much in line with what Sverre mentioned, coming into the year there was a sort of anticipation that covered bond markets would be weaker, given the swap spread and SSA developments, and the relative value to senior. But amid all the uncertainty and unpredictability in the markets, what has been notable to me is, once again, the resilience of euro benchmark covered bonds, but also Nordic covered bonds. Clearly the relatively low supply has supported this, but the increase in demand — with the strong inflows we’ve seen in investment grade funds — has been a strong catalyst for this.

Regarding our March trade, this was part of our ongoing funding needs, but we chose to come sooner rather than later. It was indeed not clear how things were going to pan out, and against that uncertain backdrop, we also saw the €750m three year deal in green format as a strong trade to come with at that point in time, a relatively defensive deal that also enabled us to reinforce our sustainable footprint.

Issuers overall need to be even more mindful than ever of timing this year, and focused and ready to issue when the market is there. But aside from that, the background for deploying our funding plan has actually been quite constructive, and we have been able to execute our funding programme more or less according to plan.

Day, The CBR: Sanna, OP came on the morning of Liberation Day itself, right?

Sanna Eriksson, OP Mortgage Bank: Everything that has been said goes for us as well. When we started the year, everything looked like it was going in a positive direction. But then came spring, and the situation changed significantly, and as we didn’t know what was going to happen after Liberation Day, we thought, let’s go before. So we went in the morning, before America woke up, and the deal was very well received, partly because people didn’t know what was about to happen.

Our funding plan for the year was €4bn, half in covered. But, as for most banks, deposits have been flowing in, and at least in our case, the loan book has not been growing so much. Meanwhile, senior funding is necessary to meet regulatory requirements, and the buffer that can be adjusted is the covered bonds.

Day, The CBR: Arve, you were next, in May with a €1.25bn (NOK11.8bn) five year. What was the story there and how did it fit in with your overall funding?

Arve Austestad, SpareBank 1 Boligkreditt: We have a rolling 12 month forecast and we knew that as soon as we posted our Q1 results and the market was fine, we would enter the market in Q2, as we regularly do. It was not a question of taking a view on whether or not spreads would tighten or widen from here, because it’s more like a marathon for us — we have to tap the euro market twice every year and we just try to find timing when sentiment is quite strong, and clearly it was in May, as it had been this spring.

In general, we are flexible, because we do half of our funding in the domestic market, half in euros, and it’s not set in stone which market we access when, but the euro market has this year proven a little stronger than the domestic market. The domestic market is fine, but even if spreads in euros are, I would say, higher than they normally should have been given the risk-on sentiment everywhere — senior is tight, stock markets are at all time highs, and so on, but covered spreads are higher now than two or three years ago — the cross-currency swap still makes euros cheaper.

So that was the rationale. But we are monitoring both markets, and when we perceive sentiment to be good, then we will hit those markets.

Ebert, DZ BANK: The question for me is, how much further can we go in spreads? You just said that covered bond spreads are for the overall market environment sentiment too wide. On the other hand, if you look at relative value, I think one could also argue that sub-sovereigns and agencies create a floor, given their regulatory benefits. They also tightened 5bp over the summer, taking German Länder in five years, for example, to plus 15bp, and after the summer break the Federal State of Schleswig-Holstein came in 10 years at 31bp. German covered bonds would probably land in the mid-30s in 10 years, and a new five year in the low to mid-20s. So there is this gap between the federal states and German covereds. On the other hand, for sub-sovereigns and agencies, Länder, KfW, and others, we see a shrinking premium to German Bunds. The key reason is that we all know that the Federal Republic of Germany has to issue more in the future, and a lot more, because the Finance Agency’s forecast shows Bund supply increasing by 50% over the next five years, from slightly below €2 trillion to close to €3 trillion. That will put pressure on Bund spreads, and as a result, we could see the premium for sub-sovereigns and agencies shrink, because the federal states and the agencies don’t face the same refinancing needs arising from defence, reform of the debt brake and infrastructure investments as the Republic of Germany. And all that could lead to a smaller premium for covered bonds over Bunds, even though the differential to sub-sovereigns and agencies remains the same. But I would not say that covered bonds have to be or can be significantly tighter, because Bunds as the ultimate floor for covered bond spreads are applying upward pressure, with sub-sovereigns and agencies sitting in the middle trying to find where their relative value sits.

What is more remarkable is that senior spreads are so tight to covered bonds. If you put yourself in the shoes of an investor, that’s a very strong reason to invest in covered bonds, because they are so cheap in relative terms. And for issuers, maybe it’s a good reason to go to the senior market instead of covereds. If you take that argument on board, you could argue that covered bonds have some further tightening potential.

On the other hand, one could argue that there’s more supply to come. In Europe, mortgage loan growth was around zero between January 2024 and January 2025, but that is now at 2% and upward-sloping. So mortgage loan growth is picking up — but deposit growth is picking up, too, so there are a number of factors at play.

Austestad, SpaBol: Regarding supply, we don’t know how much there’s going to be, because the liquidity positions of the banks are super-strong, and the credit premia for senior are at very low levels. So regulatory funding is probably what will be prioritized, and I’m not sure how much there’ll be left for covered, as Sanna noted.

Day, The CBR: Sverre, from the investor side, what are your views on these relative value aspects and your expectations in terms of how things are going to play out?

Holbek, Asgard: If you look at the shorter maturities, that’s where the bank treasuries tend to be more active, and you need to compensate for the difference in LCR treatment and risk weights between covered bonds and Länder, for example. There, we are getting towards quite tight levels. You can still justify the differentials based on the different regulatory treatment, but at least in the low beta part of the covered bond segment, we are probably approaching the limit as to how tight spreads can go. A bit further out the curve, valuations are even tighter. The composition of the investor base is maybe a bit different there, which could justify structurally tighter premiums, but even so, we have been approaching quite tight levels in terms of relative value — as I noted at the beginning. So that can give some cause for concern.

Regarding the increased issuance from the German sovereign that has been mentioned, if we see further underperformance of German government bonds relative to swaps, then that whole spectrum could be even further compressed from below. You would then need to rule out much covered bond spread performance, at least for the richer-trading segments.

Still, I think covered bonds as an asset class overall are fairly well positioned. Supply has been picking up, but we probably won’t end up above what we saw last year, maybe even somewhat below. And we should probably also see issuers still incentivised to focus on senior in order to save their collateral. I know issuers have funding plans and at the end of the day the covered bond is going to be the cheaper product, but nonetheless, to the extent that there is flexibility, current pricing might favour printing in senior instead of covered bonds. So on the supply side that’s something that could be supportive of covered bond valuations. On the demand side, there is a bit of overlap among the investor base for senior and covered, and we see some signs in order books that some investors are coming in and buying covered bonds when they are cheap relative to senior preferred, which is supportive of covered bond spreads.

You can also see that demand is there for new issues, even if some struggle a little, when there is a bit more price sensitivity. But overall, the asset class looks fairly well positioned, even though you can say that scope for performance in some segments is getting quite low right now.

Day, The CBR: Bringing us right up to date, we’ve seen the post summer reopening now, with Nordea at the forefront on Monday. Morten, what was your thinking in looking at this week and deciding to pull the trigger?

Keil, Nordea: Just as we have discussed, the strong development in spreads over the summer made for an attractive market. And then the flatness of the euro curve, combined with our current maturity structure, made us take the decision to capture the value we see there right now in the 10 year part of the curve. We also sensed that the market was really back from vacation, so came out as early as Monday, and we’re really happy with the result, particularly being able to grasp that 10 year maturity. Clearly, when you go further out on the curve, you lose some bank treasuries. On the other hand, you also get some investors who are more looking for longer duration. And it played out really well. We saw really good oversubscription for a 10 year of 1.7 times, and issuing at 38bp was successful for us, with 2bp of new issue concession. So it played out as hoped and fits well in our funding profile.

Ebert, DZ BANK: Could I ask one question on investor demand? There was a lot of talk after Liberation Day about asset managers, central banks and official institutions wanting to divest from dollars and invest into euros. Data shows that in May and June central banks and official institutions started doing so, while private funds had not yet done so. The most recent data, from July, shows that momentum among central banks and official institutions has lost steam, suggesting people feel more comfortable sticking with dollars. But the broader trend persists — you can see it in the exchange rate. One would have expected that such a move by central banks and official institutions would be reflected in order books such as yours — have you seen any evidence of this?

Keil, Nordea: The short answer is, yes, I think we’ve seen that. There was clearly good demand from both official institutions and asset managers, although private funds were more or less in line with what we would usually expect.

Ebert, DZ BANK: And have you done something to capture that investor demand, such as dedicated roadshows to Asia?

Keil, Nordea: No. Nothing dedicated.

But as the ECB has stopped its covered bond purchase programme, we have seen increased interest among individual central banks and official institutions in Europe. Among others, we are planning a roadshow in Eastern Europe this autumn to meet with “new” investors.

Recently, we also had digital meetings with Australian investors, several of whom had questions about the covered bond markets here in Europe, not only the euro, but also the Scandi markets.

Day, The CBR: Arve, you followed with your issuance yesterday. What was your thinking and how did that go?

Austestad, SpaBol: There’s always the question of when the market will reopen after the summer break, a time that we are often considering issuing, and Nordea proved that it was there on Monday, so we went ahead afterwards. We wanted a maturity longer than five years, because we did the five year in May, and also the domestic market is up to five years while euro provides more duration. So then it was basically a coin toss whether to do sevens or 10s, and because large parts of the investor base consider the Nordics to be the same — even if the various jurisdictions have their differences — we tried to shift a little away from Nordea, and so took the sevens, but it was only a marginal decision based on how we felt and how we were advised by the syndicate banks yesterday morning.

We saw more real money in the book than in the last 12 months or so. Whether that’s an expression of de-dollarisation, it’s hard to say. But we were pleased to see that, and I think many of the real money accounts that played in Nordea’s 10s also played in our sevens.

Day, The CBR: Sanna and Christian, what can you tell us about how things stand for your institution today, your plans for the rest of the year, and your views on the market?

Eriksson, OP: A lot of investors have shown an interest in meeting us, including some that we’ve never seen before, to find out more about OP. We’re the Finnish national champion, so if you are looking at the Nordics and specifically Finland, we are the bank to follow.

Regarding issuance, we front-loaded our activity, so the end of this year will be quiet, I’m afraid. But we’ll see how things play out: Finnish people are really cautious and because of the variable interest rates, they are in wait and see mode right now, but there is that kind of latent demand — at some point you have to move, you have to buy a house — so at some point change will happen, and when it does, it could do so dramatically.

Bech-Ravn, Jyske: It’s good to see other issuers going for the longer end of the curve. When we go to the euro market, our ideal spot is typically around the seven year area, so it’s good to see that point working very well at the moment, and, as Morten said, with quite a flat interest rate curve, the market is attractive. We normally have a strategy of going to the market once a year, but we could potentially look into the market one more time this year. For us, it is extremely important that the market is working. Of course, a basis point extra is nice, but the most important thing for us is that we do see a market that’s functioning, both for the investors and the issuers, so that when we go to the market, we are absolutely sure that we can do a transaction, and we believe that to be the case at the moment.

Day, The CBR: Sverre, coming back to this discussion around government bonds, particularly Bunds, and relative value: at the Athens ECBC plenary in April, the Greeks were very big on covered bonds being safer than government bonds. Is there an argument for this to be applied more widely in the market and for us to see more trade through the sovereign?

Holbek, Asgard: There certainly is. Greece is indeed a case in point: after all, we have had no covered bond PSI, and ratings can also support tighter covered bond valuations than sovereign valuations.

Then you have counter-arguments. One is regulatory constraints, which may only apply to parts of the investor base, but nonetheless, the investor base overall gets impacted by it, and therefore it has to be reflected to some extent in valuations, too. Liquidity does not usually play in favour of covered bonds, but points in the opposite direction.

But the structural increase in issuance related to defence spending is something that one has to factor in, and which over time points to tighter valuations of covered bonds relative to SSA alternatives.

Austestad, SpaBol: Isn’t that situation already there in France?

Holbek, Asgard: Yes.

Austestad, SpaBol: Without the extra defence spending?

Holbek, Asgard: Definitely.

Ebert, DZ BANK: That has a rating aspect as well.

The underlying pressure that comes from Bunds is a bit different, because Bunds are triple-A, and even if we would spend all that additional money, our debt to GDP ratio, subject to growth forecasts, would be in 10 years’ time around 70%-80%. That’s still a relatively low level in comparison to other countries like Italy, France, the US and others, so Germany would still hold the crown in respect of credit quality — at least in the Eurozone. Furthermore, Germany has the benefit of the Bund market being so liquid. So given Bunds’ high credit quality and high liquidity, I can’t see covered bonds trading through the German sovereign — it’s different than France, Greece and others.

We forecast 10 year Bund yields rising from 2.6%-2.7% to 3% by mid-2026, with the covered bond index widening from 37bp now to 42bp by year-end and 50bp by year-end 2026, partly as a result of this widening pressure coming from Bunds.

Austestad, SpaBol: I do not disagree. However, there are some risk factors in Germany that are not beneficial for the government, either — the political situation, the lack of growth, etc — which put pressure on its rating. It’s not given that Germany’s always going to be triple-A.

Ebert, DZ BANK: That’s a fair point and one of the reasons why German investors have diversified away from German covered bonds. In recent times, German investors were surprised by the kind of meltdown in commercial real estate, and were then concerned about the country’s growth prospects. They now feel a bit more confident about staying invested in Germany, because the country seems to be getting back on a growth trend, but German investors’ desire to diversify away from German covered bonds persists. And the Nordics look attractive for them, as do issuers from overseas, such as Australia and Canada — French issuers, less so, for political reasons as well as the fiscal deficits. That’s one of the reasons why issuers are still well advised to come to Germany for their roadshows and marketing.

One other aspect that I’d be keen to hear opinions on is covered bond redemptions. These are increasing, from around €116bn last year, to €136bn this year, and €156bn next year. But will they be replaced with new supply? Christian, you said that you would consider coming to the market another time this year. Is that already pre-funding for next year? And Sverre, how do you look at this driver of supply as an investor?

Bech-Ravn, Jyske: From our perspective, this is an opportunity to tap into a market that is working very well, so it makes sense to do some euro funding now instead of waiting until next year.

Holbek, Asgard: It’s a very different picture from institution to institution and country to country, so it depends on the mortgage dynamics in the specific jurisdiction, and also on the liability side of the financial institution, with some having the flexibility to shuffle around between different asset classes.

For us, more redemptions naturally mean that we have more investments to recycle back into the markets, but we have the flexibility such that we don’t necessarily have to replace them one for one in the portfolio — it is always evaluated on a case by case basis.

Keil, Nordea: It very much comes back to what Sanna mentioned before. Currently, at least across the Nordics, customers are conservative and careful, given the geopolitical situation, and across most Nordic banks, deposits are flowing in and mortgage markets are not up to speed — that can be seen in the Q2 results. So the loan to deposit gap you need to fill is potentially shrinking, which could point towards net issuance being negative. On the other hand, you don’t know when things are going to pick up — momentum could potentially arrive from lower interest rates or just a change in customer sentiment. It’s difficult to predict. So while we are mindful of redemptions, doing your funding is like trying to steer a tanker with all these other parts moving around the balance sheet.

Eriksson, OP: Previously it was the other way around: when the mortgage market is really hot, you see a lot of new loans, and you also see the deposits going into the property. But now it’s the opposite. So it’s not a matter of whether the funding is cheaper or more expensive; if you don’t need it, then you simply don’t do it, while from the regulatory perspective, you still need senior. Also in Tier 2, we had a €1bn call, and replaced it via a €500m trade — that highlights the dynamics.

Day, The CBR: Rounding out the jurisdictions, Morten, you don’t issue in euros out of your Swedish platform, but I imagine you have some insights into what’s behind the €4.5bn of euro benchmark issuance from that country, which is relatively high.

Keil, Nordea: At Nordea, we have our four fully-owned subsidiaries in each of the home countries from where we issue covered bonds, and as such where we can capture all the markets.

But from the outside, I would say that the dynamics for Swedish issuers are somewhat similar to what Arve may face in Norway, with the choice to go in euros or in the domestic currency. And the arbitrage is clearly a deciding factor in whether it makes sense to issue in euros and swap into the domestic currency where you have your balance sheet. Then in euros there is also the greater investor diversification achievable and more flexibility in terms of tenor, whereas “tap” markets in SEK and NOK add flexibility, are open most of the time, and enable growing benchmarks to large size.

Ebert, DZ BANK: We were on a very strong Swedbank €1bn five year trade ahead of the summer break, in June: it achieved a €1.8bn peak book and €1.7bn book at re-offer, and landed at 33bp with just a small new issue concession. So there is that demand for Nordic paper, as I said before, with not only German but also some French investors looking to diversify away from their domestic market for obvious reasons. The Nordics are close to home, enjoy strong fundamentals, have proven to be a very strong issuer base, and offer a high quality product, so there is that appetite for Nordic names if they come to the euro market.

Day, The CBR: We’ve discussed mortgage market developments in relation to funding needs and supply. But Sverre, do you see any causes for concern from a credit perspective, or any other developments to bear in mind when looking at Nordic issuance?

Holbek, Asgard: Commercial real estate has also been a topic in the Nordics, especially in Sweden, given the sensitivity to the rapid rise in interest rates — probably less so for covered bond investors, given that commercial real estate did not feature to any significant degree in cover pools in Sweden.

Overall, as we look across the Nordics, people seem to have been able to cope with the interest rate shock, and cover pool metrics still look quite solid. There are some pockets where price developments are currently quite hot, but looking at cover pools, they tend to be relatively diversified. So it’s not an area of big concern. You also have the strong legal safeguards. And on the issuer side, Nordic banks are in a strong position in terms of capital level, etc. So we are quite comfortable about how Nordic banks are positioned — even though on the earnings side things are perhaps not as strong as they used to be, with margins coming down, and volumes, as we discussed, not being able to compensate for this.

Day, The CBR: The EBA recommendations on the covered bond directive and related matters are landing shortly. What can be expected from these? How does their importance compare with the implementation of the directive?

Eriksson, OP: The directive so far has been a real success, with the whole market benefiting, both issuers and investors, while maintaining the well-functioning markets we had before. With all the open discussions and cooperation that the ECBC has had with the EBA, there’s a good chance that we again will be able to achieve a similarly successful outcome.

Day, The CBR: The most newsworthy angle so far has been third country equivalence, how it will work, and reciprocal arrangements. Is this something to look forward to or to buckle up for?

Ebert, DZ BANK: First of all, it’s a great opportunity to create a level playing field for all covered issuers globally. So it’s an opportunity rather than a risk.

However, I have felt over the last two years that a form of protectionism is creeping into the covered bond market. The UK PRA announcement a few months ago was testimony to that kind of protectionism. I’m glad that the PRA has recently announced the withdrawal of its modification for LCR eligibility of third-country covered bonds in the UK. However, HMT has now initiated a consultation process to assess whether it remains appropriate to maintain different regulatory treatments for UK and foreign covered bonds. For the time being, UK investors can treat third country covered bonds the same as before.

Furthermore, you may have seen at the beginning of 2025 that EBA has changed the risk weighting for non-EEA covered bonds for banks that apply the Advanced IRB approach — major banks in Europe, including ourselves — such that it went up and the covered bonds became less attractive. That’s another unfortunate development.

In contrast, the short presentation EBA gave to the EU Financial Services Committee on 7 July basically said “yes” to an equivalence regime. That’s not a surprise — we all expected EBA to be in favour of that. But they also clearly stated that reciprocity is an overarching rule in negotiations with third countries. Well, from a European perspective, one might think that’s fair enough: if, say, the Europeans allow Australians to have the same regulatory treatment in the euro covered bond market, which is a HQLA Level 1B, they want to benefit from the same beneficial regulatory treatment when coming to the Aussie dollar covered bond market. However, it is a lot to ask of countries like Canada and Australia, because they have implemented the Basel III rules more compliantly and under Basel III, Level 2A LCR treatment is the best a covered bond can achieve. It’s then difficult to ask them to go beyond what Basel III recommends and give covered bonds an additional preferential regulatory treatment.

Achieving equivalence will also be easier for some countries and harder for others. New Zealand, for example, has not adopted the usual Basel III rules such as LCR and NSFR ratio and there is no large New Zealand dollar covered bond market — different to Australia. And neither is there an established Canadian dollar covered bond market, so it would be a lot to ask the Canadian regulator to allow 1B treatment and 10% risk weight for a covered bond from a European bank.

We should all aim for a level playing field, but bearing in mind that we are starting from very different levels in Australia, New Zealand and Canada, and in Europe, where the products have a long history. So while it’s an opportunity for the market, at some point there will be very hard negotiations between the European Commission and foreign regulators.

Day, The CBR: Arve, you have been active in sterling. What are your hopes and expectations on this topic?

Austestad, SpaBol: In general, we would like covered bonds to be a global product — whether it’s Canadian or Australian, it should be treated the same. That would be a big advantage for us, because the investor reach would probably be better.

We issued 144A covered bonds in the US some 15 years ago, because after the financial crisis there were some discussions in the US as to whether they should put covered bond legislation in place, or continue, as we used to have, with government funding of mortgages. They ended up continuing with the federal involvement, but the challenge for us there was that US banks didn’t use this product for the liquidity portfolio, and the only way they could have used it were if a regulatory regime were put in place for that.

As for the PRA move, it was very surprising — nobody seems to know if it was politically motivated or because they don’t know what is in third country covered bonds and don’t have any control over them. But while I can understand that from a credit perspective, what did they expect? The knock-on effect is that UK banks might not get 2A treatment in Europe anymore and, if so, they could find it difficult to issue at all in the euro covered bond market. It was good that the UK PRA withdrew the original proposal and saw the bigger picture: covered bonds work very well for financing mortgages in Europe and maybe they should take advantage of that.

Day, The CBR: Sverre, how do you view the directive and the latest developments?

Holbek, Asgard: Generally speaking, we are in the camp that the directive has achieved a lot of good things. It has probably been an important building block in fostering new jurisdictions and new issuers to come to the market, especially in Eastern Europe. It is also positive that we have a fairly high level of minimum standards, even though there are finer nuances between the various legal frameworks and some are still stronger than others. The Nordics have probably been among the less affected, given that the frameworks were already quite strong. If we do get a third country equivalence regime, that would also be positive, because I believe that that some of these covered bond jurisdictions still have some areas where they could be improved relative to European standards. That being said, the timeline for this to be ultimately implemented seems to be quite long, with lots of hurdles to be cleared first, so we’ll have to wait and see.

Day, The CBR: Amid the public pushback against ESG in various quarters, are we still seeing positive developments in sustainable covered bond issuance?

Ebert, DZ BANK: Sustainable covered bonds are a good product for a rainy day. Issuers do have two features to limit execution risk in a particularly volatile environment: limiting size, to €500m will-not-grow; and adding a sustainable element in order to broaden the investor base.

We see ongoing supply in the asset class, but people have indeed been putting a question mark behind the growth of investor demand. According to Morningstar Sustainalytics data, even before Trump was re-elected president, the volume of sustainable funds in the US had peaked and was falling slightly. Data for Europe shows that fixed income sustainable funds are still growing — even reaching a new high of €3 trillion at the end of the second quarter — but at a slower pace. Speaking anecdotally, at conferences, roadshows and gatherings like this, some investors say, let’s skip the section on ESG in your presentation because I’m on top of everything, so let’s look at a more pressing topic, like CRE or tariffs.

But ignoring climate change will not make it go away, so the topic will come back, and my recommendation is that issuers keep up their asset growth, issuance plans, their frameworks, and so on and so forth. When the topic does return, it will likely do so with more urgency, because climate change is getting worse, not better.

Eriksson, OP: Within the OP group, there’s a lot going on with ESG when it comes to data, transparency and so on, and it’s just becoming a part of our everyday operations, and also our reporting.

On the investor side, it’s been kind of shocking how questions about ESG have dropped 80%, 90%, just as Matthias said — there are many meetings where we don’t mention it at all. However, they are always interested in when we will be issuing in green format, so there is definitely appetite for that. As for greeniums in covered, they are one to none. So while investors want green, there is not much eagerness to pay for it. In that sense, I think it is becoming the new normal, with some issuance in green and then the regular ones.

Bech-Ravn, Jyske: In the euro market, I definitely agree with your description of greeniums. But we are actually starting to see a larger greenium in the Danish market, I would say it’s now 4bp-5bp when we issue in green format.

Eriksson, OP: That’s cool. Hope to see that in euro market as well.

Bech-Ravn, Jyske: I don’t know if Danish investors are more focused on ESG, but we definitely see much greater demand when we issue in green format in Danish kroner.

So far, we have been very much focusing on showing the green part of the cover pool, which we can finance with green bonds. We are now starting to look more and more into climate risk — rising sea level, heavy rain, flooding, etc. I think that’s an aspect that issuers in general will need to have a greater focus on, showing how exposed are their cover pools to climate risk, and investors will increasingly demand transparency on the climate risk in your loan book. All the Danish banks are cooperating on this through a jointly-owned company that has helped on this aspect, so we can now collect data on climate risk for all buildings in Denmark.

Holbek, Asgard: We don’t manage Article 9-labelled funds; nonetheless, we have a preference for green bonds. It is something that is important for our stakeholders, and therefore important for us, too. We also have various reporting obligations towards our stakeholders on ESG investments. So overall it is an important element in our investment process.

Day, The CBR: We have been seeing the first EU Green Bonds in the wider bond market. What are your expectations for these when it comes to covered bonds?

Eriksson, OP: I don’t yet see what the EU Green Bond Standard offers, or how issuers will respond to it. We already have a well-functioning green covered bond market and it doesn’t seem to bring much that is new, while it’s also quite challenging and you don’t seem to gain any pricing advantage. What do you all think? We would love to see some issuers being pioneers and showing how it’s done.

Day, The CBR: What’s Nordea’s view on this and the earlier ESG points?

Keil, Nordea: On greeniums, it’s interesting to see the differences across euro covered and then the Scandi currencies. I agree that recently we have seen sizeable greeniums in Denmark — 4bp-5bp, which indicates strong investor demand for green. We also see greeniums in Norway, but especially in Sweden, where there is a very dedicated green investor base and you can get more bang for your buck in the green issuance.

I agree on the climate risk point: there is a lot of reporting to come on this front, particularly in response to investor demands.

Then on the initial point, from a Nordea perspective, our ambitious sustainable funding targets remain, and we intend to be active and relevant in this respect in covered bond issuance from all four platforms, basically every year going forward.

And we are also exploring the conditions for issuing a EU Green Bond in covered format.

Austestad, SpaBol: You would expect that in two or three years, ICMA green bonds will no longer be issued. Why shouldn’t you have a standard rather than arbitrary criteria for each issue? So it’s going in that direction, even if the immediate benefits are not evident.

Bech-Ravn, Jyske: There are also some risks for issuers when you issue an EU Green Bond. The Danish FSA, for example, has not been very vocal on how they see EU Green Bonds and I assume it’s the same with other European FSAs. There is a risk that, if you issue a European Green Bond, the FSA may determine that you do not fulfil the criteria, since the requirements for European green bonds are still open to interpretation.

Austestad, SpaBol: Yes, agreed, but issuers can get comfort, at least around financing residential property with an EU Green Bond, which is what SpaBol would do as a specialist issuer. The risks in that area are or can be addressed and contained, and not pose a threatening scenario. The EU Commission could also help in this regard with clarifications, and is in general trying to do that, I think, with its so-called omnibus package.

Keil, Nordea: These are all valid points. I think that down the line, we will see a mix of EU green bonds and ICMA issuance.

At Nordea, we are aware of the enhanced requirements and the differences between an EU Green Bond compared to an ICMA bond. But we also see ourselves and want to be at the forefront of developments in the green issuance area.

Ebert, DZ BANK: Circling back to dedicated green investors. We recently observed an interesting opportunity for issuers with missing or weaker ESG ratings to reach so-called “dark green investors” — i.e., investors with dedicated funds that are only allowed to invest in sustainable assets — through private placements. When an investor was not able to invest in an issuer’s conventional bond because its sustainability rating was too weak, we suggested issuing a green bond instead of a conventional one, which the investor was able to buy. The reason for this is that some dark green investors use a different assessment methodology for green bonds than they do for conventional bonds. For these investors, the increased transparency and the associated use of proceeds for particularly sustainable activities are the main focus in the case of green bonds. Green bonds can then be a way for issuers to gain access to investors that they could not reach with a conventional bond in private placements.

Eriksson, OP: I have to say that what we hear is not so much a focus on the green products — partly because there are not so many of them — but the overall sustainability of the group or issuing entity, or in covered bonds, the cover pool. And not just the part of the cover pool that is green, but the whole cover pool. That is why there is this greater focus on transparency about everything we have in the cover pools.

Day, The CBR: Arve, how is your green activity developing?

Austestad, SpaBol: We issued the first ever green covered bond with residential mortgages in 2018. Back then, we used building year and building codes to decide which were in the top 15% most energy efficient. Now, new legislation has come into place where you need EPCs. But in Norway, only 30% of buildings have EPCs. That wouldn’t give us critical mass, so we have a methodology using what we call estimated EPCs, which is a model that all the banks in Norway are implementing. So we have to change the data structure, which takes a little time, also aligning it to updated regulation coming in January next year — there are some moving parts.

We are also looking into this EU Green Bond Standard and I think we will aim for that.

When we were considering our euro benchmark yesterday, the advice was that green wouldn’t move the needle at all for investor demand right there and then. But going forward, we still want to bring more green loans on board, first because we think that is the right thing to do in the housing market and see — as mentioned earlier — that domestically in Norway there is a differential, and also in Sweden, with the particular investors base that is attractive for us. Indeed, some Norwegian issuers are just going to the Swedish market to issue green bonds and do not issue that much green in euro denominated bonds.

You can download a pdf of the roundtable here.

Photography: Niels Busch

The wave of issuance took year-to-date supply to €180.4bn. While full-year numbers are still expected to fall well short of the near-€200bn record of 2022, the pick-up in issuance delivered on hopes that November could provide a boost to volumes after just €10.25bn of euro benchmarks in October. Looking at potential supply before year-end, last year €11.25bn was issued between Monday, 14 November and 31 December.

The week provided a particular boost to Norwegian 2023 supply, with DNB Boligkreditt and Sparebanken Vest Boligkreditt each hitting the euro covered bond market for the first time this year and lifting issuance from the jurisdiction from three issues totalling €2.25bn previously to €4bn year-to-date.

A €1.25bn (NOK14.8bn) five year issue for DNB on Tuesday is the largest single-tranche fixed rate euro benchmark covered bond since 24 August, when Crédit Agricole Home Loan SFH sold a similarly sized five year. DNB’s last euro benchmark covered bond was a €1bn seven year in May 2021.

Leads Crédit Agricole, DNB, Helaba, Nomura, NordLB and UBS priced the new issue at 30bp over mid-swaps on the back of more than €2.1bn of demand, excluding joint lead manager interest and pre-reconciliation, after having tightened pricing from guidance of the mid-swaps plus 34bp area on the back of books above €1.75bn.

A lead banker put the new issue premium at 4bp.

“It was a super-strong trade,” he added. “€1.25bn is probably the higher end of what we thought we would be able to get, so size and price targets both achieved.”

Sparebanken Vest hit the market in the wake of its compatriot, as leads Crédit Agricole, Danske, Helaba, ING and LBBW priced its €500m no-grow five year at 34bp, 5bp inside guidance, on the back of a peak book above €1.65bn and final book above €1.54bn.

“Even though we were quite aggressive in the end, we didn’t really lose any momentum,” said a banker at one of the leads.

Syndicate bankers at and away from the two trades said scarcity value benefited both Norwegian issuers, as well as relative value.

“If you compare these Norwegians in the 30s versus German Pfandbriefe in the low 20s, they offer a very good relative value with a very good quality,” said one. “There are some technical disadvantages regarding ECB eligibility, haircuts, etc, but that’s it That’s why the Norwegians are working pretty well.”

A syndicate banker said that while the Norwegian supply demonstrated the interesting opportunities in the covered bond market, they are not available for all.

“A German, for example, wouldn’t be able to do something with a concession as low as 4bp,” he suggested. “Look at DZ Hyp: it came with 6bp for a shorter maturity, even for a €500m no-grow.”

The German issuer printed its €500m 3.7 year mortgage Pfandbrief at 16bp on Tuesday via ABN Amro, Commerzbank, DZ, Natixis, NordLB and UniCredit, following guidance of the 20bp area and with an allocatable book of €1.31bn.

“So it’s very much on a name by name, geography by geography basis,” added the banker.

Another said Sparebanken Vest’s success had overshadowed a €500m 5.25 year debut euro benchmark from Finland’s Oma Savings Bank (OmaSp) the same day. Leads Danske, Erste, LBBW and Nordea tightened pricing just 1bp from the 50bp area to 49bp, with the book peaking above €650m and the final book some €600m.

As the deal was OmaSp’s first euro benchmark – following sub-benchmark issuance previously, bankers said fair value was hard to calculate, but some noted the high pick-up over recent Finnish supply from established names, such as a €1bn five year Nordea Mortgage Bank issue at 26bp on 19 October and a €1bn February 2027 OP Mortgage Bank deal at 23bp on Monday.

Led by Barclays, BNP Paribas, DZ, Nomura and OP, OP’s new issue was priced on the back of more than €1.5bn of orders, with pricing tightened 5bp from guidance to finish at a new issue premium of around 3bp. A lead banker noted that short-dated tenors remained the easiest, and that OP could take advantage of that after having issued five and seven year benchmarks already this year.

The Nordic issuer hit the market this morning shortly after having today announced its latest results.

“They moved quickly post-numbers,” said the lead banker, “to get ahead of competing supply from the Nordics and elsewhere from issuers coming out of their silent periods.”

Leads BNP Paribas, LBBW, HSBC, Nordea and SG opened books with guidance of the mid-swaps plus 30bp area for the euro benchmark-sized October 2028 Finnish covered bond, expected rating Aaa. After around an hour and 10 minutes, the leads reported books above €1bn, excluding joint lead manager interest, and after around two hours and 45 minutes, they set final terms of €1bn at plus 26bp on the back of orders exceeding €1.5bn, excluding JLMs, with the final book closing above €1.45bn, including JLM interest.

A banker at one of the leads said the five year maturity had been chosen to target the deepest pool of liquidity, as well as differentiating it from several recent shorter dated more esoteric benchmarks. The tenor was also a good fit for the issuer and complemented its earlier 2023 issuance, a €1bn seven year in February and a €1bn three year green covered bond in August.

Lead bankers put the new issue premium at guidance at 9bp-10bp. Pre-announcement comparables circulated by the leads included two Nordea Mortgage Bank euro benchmarks issued this year, 3.5% August 2026s at an i-spread of 7bp and 3% February 2030s at 26bp, while older 0.125% June 2027s and 1% March 2029s were at 17bp and 24.5bp, respectively.

“They started with a sensible NIP and got a good book behind them, enabling them to take the €1bn and achieve a very strong result,” said the lead banker.

Syndicate bankers away from the leads welcomed the deal’s success.

“The tenor is still the sweet spot and more or less the longest you can go these days,” said one. “It was well-timed after their results came out – fairly good results – and with a degree of stability in the market.

“So a good trade considering the market we are in. It wasn’t a super-blow-out, but they didn’t overpay and hence get a €2bn or €3bn book.”

Another said that although the leads put fair value closer to 20bp, it could arguably be seen at 23bp-24bp, meaning that Nordea’s outcome was all the more impressive.

“Then again, Nordea is a name that usually gets a lot of attention, even if they may start a bit tighter than others would need to,” said the syndicate banker. “They also got the size they wanted and only small drops based on the numbers they put out.”

Stadtsparkasse München was also in the market today, with a sub-benchmark Pfandbrief, following a mandate announcement yesterday.

Leads BayernLB, Erste and Helaba opened books with guidance of the 30bp area for the €250m no-grow October 2028 mortgage Pfandbrief, expected rating AA+ (Fitch). After around an hour and a half, the leads reported books above €300m, including €265m of JLM interest, and after around two-and-a-quarter hours, they revised guidance to 28bp+/-1bp, will price in range, on the back of books above €360m. The spread was ultimately set at 27bp on books above €375m, including JLM interest, and the final book was above €325m.

Today’s supply comes after LBBW reopened the German market on Monday with a €500m no-grow three-and-a-half year public sector Pfandbrief and Banca Popolare di Sondrio sold a €500m no-grow five year OBG on Tuesday.

The Italian deal, expected rating AA (Fitch), was priced at mid-swaps plus 81bp on the back of books above €790m, including €75m of JLM interest, following guidance of the 83bp area. Unlike preceding OBG issuance, Banca Popolare di Sondrio’s new issue came inside BTPs, while 48% was placed domestically and 52% outside Italy. The bank said the transaction completed its medium to long term funding plan for 2023.

A syndicate banker said the week’s deals should give issuers that have been monitoring the market greater confidence in approaching investors, even if supply next week will remain subject to developments in the Middle East and macroeconomic news.

“The market is there – you just need to be aware of your own name recognition and/or be pragmatic in recognising the requisite starting level. Many issuers do acknowledge that – also with respect to how things may compare to January, and choose to pre-fund.

“But – somewhat unusually for covered bonds – it depends very much on the day, with nervousness about conditions persisting.”

After a mandate announcement yesterday (Wednesday), leads BayernLB, Commerzbank, DZ, Erste, LBBW and UBS this morning went out with guidance of the mid-swaps plus 18bp area for a euro benchmark-sized May 2027 mortgage Pfandbrief, expected rating Aaa. After around 50 minutes, they reported books above €1bn, excluding joint lead manager interest, and after around two hours and 10 minutes, they set the spread at 17bp and the size range at €750m-€1bn on the back of books of some €1.25bn. The deal was ultimately sized at €750m, with the book closing at €1.04bn, excluding JLM interest.

The euro benchmark is Bawag PSK’s fifth of the year, taking its issuance to €4bn, more than double the amount it has raised in any previous year – and with Austrian supply overall having hit record levels. The four-and-a-half year maturity is meanwhile the shortest the issuer has tapped in 2022.

A syndicate banker at one of the leads acknowledged that line availability has been an issue for Austrian credits, but said Bawag PSK had achieved a “rock solid” result. He cited the €750m size and the tightening by 1bp, which he said implied a new issue premium of 8bp. Bawag PSK January 2027s were seen at 8bp, mid, according to pre-announcement comparables circulated by the leads, and its January 2028s at 9.5bp.

“Given how active they’ve been, plus the fact that it’s still a sort of challenging environment, and quite a few accounts are already done for the year, it’s a decent transaction in being very much within the parameters of what we’ve seen recently for new issues, with one or two notable exceptions,” said the lead banker.

“The market has had to come to grips with all the Austrian supply, and I think it has done so,” he added. “Getting away five deals is quite an achievement.”

The final size of €750m was nevertheless at the lower end of that flagged as possible in the second update during execution, with the book dropping around €250m after the size range and final spreads were announced.

Oma Savings Bank meanwhile tapped its outstanding €350m December 2026 issue for €250m, taking the line to €600m and making it the Finnish issuer’s first deal of benchmark size.

After a mandate announcement yesterday, leads Danske, Erste and LBBW today priced the tap at 27bp over mid-swaps and sized it at the expected €250m, on the back of a final book above €325m, including €10m of JLM interest, and following guidance of the 27bp area and with the outstandings having been quoted at 9bp. The 27bp re-offer spread also compares with 23bp for a €300m five year Mortgage Society of Finland issue on Tuesday and 20bp for a Sp Mortgage Bank €750m five year on 24 October, that was trading at 19bp.

Following a mandate announcement yesterday (Tuesday) morning, Raiffeisenlandesbank Oberösterreich (RLB OÖ, ticker RFLBOB) leads DekaBank, Deutsche, DZ, Erste and RBI opened books this morning with guidance of the mid-swaps plus 12bp area for the €500m no-grow April 2027 mortgage covered bond, expected rating Aaa. After around 50 minutes, the leads reported books above €1.1bn, excluding joint lead manager interest, and after around an hour and 25 minutes, they fixed the spread at 7bp on the back of books above €1.6bn. The final order book was above €2.25bn, including €140m of JLM interest.

RLB OÖ’s spread is 1bp inside that achieved by compatriot RLB NÖ-Wien on the last euro benchmark to hit the market, a €750m five year on Tuesday of last week priced at 8bp over, which had also started at guidance of the 12bp area, although for a “euro benchmark” rather than specific size. A syndicate banker at one of the leads attributed the tighter outcome partly to the €500m size being known at the outset, meaning investors could place their orders with more certainty.

“This one was probably slightly more dynamic than RLB NÖ-Wien’s – which was a success in its own right,” said a syndicate banker at one of RLB OÖ’s leads. “We managed to tighten by 5bp rather than 4bp.

“RLB NÖ-Wien was keener on playing the size option, which took some of the price dynamics off the table. But in the end both issuers can be happy with their respective trades.”

According to pre-announcement comparables circulated by the leads, RLB NÖ-Wien’s five year was quoted at 5.5bp, mid, while RLB OÖ’s September 2026s were at 4bp and July 2028s at 5.5bp, and the lead banker put fair value at around 5bp. The new issue premium of 2bp is at the lower end of levels achieved by issuers since Russia’s invasion of Ukraine.

RLB OÖ’s last euro benchmark was a €500m 15 year issued in January 2020.

Fellow Austrian Hypo Tirol is due with a €300m no-grow five year covered bond, expected rating Aa1, after announcement this morning. ABN Amro, DekaBank, Erste and LBBW are leads.

The issuer’s €500m October 2026s were quoted at 6bp, mid, and its €500m March 2031s at 11.5bp, according to pre-announcement comparables circulated by the leads.

Sp Mortgage Bank hit the market today after a mandate announcement and investor calls yesterday. Leads BNP Paribas, LBBW and Nordea this morning went out with guidance of the mid-swaps plus 7bp area for the €300m no-grow April 2025 Finnish covered bond, expected rating triple-A. After an hour and a half, they reported books in excess of €550m, excluding JLM interest, and set the final pricing at mid-swaps plus 4bp. More than €620m of demand, excluding JLM interest, was good at re-offer.

A lead banker said the deal went well, being more than twice subscribed and with the size and trading levels of Finnish paper at the tighter end of the market not suggesting any multi-billion euro order book was on the cards.

Sp Mortgage Bank usually prints €500m covered bonds but issued the sub-benchmark with an unusually short, three year maturity due to a specific pool management requirement, according to the banker, who said the issuer will return to benchmarks afterwards. He said that in spite of the sub-benchmark size, they used Sp Mortgage Bank’s benchmarks to calculate fair value, and won over investors sufficiently to limit the new issue premium to 3bp-4bp, rather than the issuer having to pay premiums similar to Finnish sub-benchmark names.

The burst of supply after the long holiday weekend comes after the European Central Bank last Thursday maintained a holding position vis-à-vis the end of net new asset purchases and interest rates.

“That the bank remained committed to its guidance has given some comfort to issuers that there is no time like the present, despite the already significant flow of primary covered bond activity year-to-date,” said Rabobank analysts.

“With the ECB’s bid still in play for the time being and a buyers’ market prevailing, those looking to fund will be very much incentivised to do so sooner rather than later. That too, we would argue, brings comfort.”

Today’s new issues settle ahead of the end of April – as Hypo Tirol’s is expected to – after which market participants believe a further cut in standard CBPP3 orders to 20% is possible, following a reduction from 40% to 30% at the beginning of this month.

However, syndicate bankers were unconcerned about any further step-down in Eurosystem activity.

“Issuers are well aware of that,” said one, “but at the end of the day, the private sector bid is quite good. The elevated yields are driving up demand and we don’t see spreads widening.”

Another syndicate banker said that, excepting Hypo Tirol’s sub-benchmark, he does not expect further euro benchmark supply this week.

“I’d be surprised if there was much more,” he added. “Even the three deals this week is more than I would have expected – it’s still vacation time on the continent.”

The last supply beyond of seven years or longer came on the eve of the Russian invasion, when Crédit Mutuel Home Loan SFH priced a €500m 10 year at 8bp over mid-swaps on 23 February as part of a €2bn dual-tranche issue. The longest-dated issue since then was a €1.25bn six year for CFF on 8 March.

A syndicate banker at one of the leads said the new Finnish benchmark was launched on the back of successful issuance of 10 years and longer in the SSA market, and following feedback from investors that they would be open to a seven year trade from a strong Nordic name such as Nordea. The improved tone of the credit market was meanwhile highlighted by the launch of the first euro Additional Tier 1 issue of the year yesterday (Wednesday), a €1bn deal for Intesa Sanpaolo, even if the lead banker said the market in general was a touch weaker today.

Nordea’s deal was announced this morning, leads BNP Paribas, HSBC, LBBW, Nordea and UBS going out with guidance of the mid-swaps plus 8bp area for the March 2029 euro benchmark, expected rating Aaa. After around two hours and five minutes, they reported books above €2bn, excluding joint lead manager interest, and after nearly two-and-three-quarter hours they set the spread at 4bp on the back of books above €2.1bn. The deal was ultimately sized at €1.5bn and the final book good at re-offer was above €2.1bn.

“At the end of the day, we can say the market is open for seven years,” said the lead banker. “Those who gave us the positive feedback were there in the book today, so investors seem to be shifting focus from five years to seven years.

“I’m not sure whether that will last long,” he added, “because we are living on headlines, so to speak – if something arises in connection to Ukraine or CPI data, it maybe will change. But for now, you can print seven years if you are a strong and established name.”

Today’s covered bond is Nordea Mortgage Bank’s first euro benchmark since a €1bn eight year deal in June 2019 and only the second from Finland this year.

According to pre-announcement comparables circulated by the leads, Nordea March 2027s were quoted at mid-swaps minus 4bp, mid, June 2027s at minus 3.3bp, and February 2033s at minus 0.4bp, but the lead banker said the syndicate saw fair value around mid-swaps flat, although it could be seen a little tighter. He noted that the new issue premium was higher than that paid by Crédit Agricole Home Loan SFH for a €1.75bn long five year on Tuesday, but said this could come down for longer dated issuance if the market remains relatively stable.

A syndicate banker said another seven year benchmark could emerge as early as tomorrow (Friday) from a name at a wider spread than Nordea, which he said should help it succeed on the last day of the week.

Arkéa Public Sector SCF’s mandate was announced this morning, and leads Crédit Agricole, Crédit Mutuel Arkéa, DZ, LBBW, Nykredit and Santander opened books with guidance of the mid-swaps plus 9bp area for the March 2028 euro benchmark, expected rating Aaa. After around two hours, they reported books above €800m, excluding JLM interest, and after around two hours and 20 minutes, they set the spread at 5bp for an expected size of €500m on the back of books above €950m. The size was ultimately set at €500m on the back of books around €700m of orders, excluding JLM interest, good at re-offer.

According to pre-announcement comparables circulated by the leads, Arkéa Home Loans SFH October 2027s were quoted at plus 1bp and July 2029s at 2bp, while Crédit Agricole Home Loan SFH’s long five year on Tuesday came at 4bp.

A lead syndicate banker said that while the deal had been a success, the book had built slowly and that, given the modest size of the deal, he had expected it to be priced slightly tighter.

Today’s deals came after Hamburger Sparkasse yesterday priced a €500m no-grow five year mortgage Pfandbrief at 2bp over mid-swaps. Leads BayernLB, Commerzbank, DekaBank, Hamburger Sparkasse and UniCredit built a book above €1.8bn on the back of initial guidance of the 6bp area, and the final order book good at re-offer was above €1.5bn.

After a mandate announcement yesterday (Monday), Crédit Agricole Home Loan SFH leads Crédit Agricole, Danske, Deutsche, Erste, ING, Santander and SG went out this morning with initial guidance of the mid-swaps plus 8bp area for the February 2033 obligations de financement de l’habitat, expected ratings triple-A. After an hour and 35 minutes, they reported books above €1bn, including €50m in JLM interest. After two hours, they reported books over €1.5bn, excluding JLM interest. After two hours and 35 minutes, the spread was set at plus 5bp, on the back of an order book in excess of €1.6bn, excluding JLM interest. The size was ultimately set at €1.25bn on the back of demand over €1.5bn, excluding JLM interest.

A syndicate banker away from the leads said the transaction showed how the market is tougher in longer maturities. Another saw it as having gone smoothly, but suggested the French issuer had gone out with more generous IPTs after ABN Amro yesterday priced a €1bn 15 year on the back of books above €1.15bn while paying a new issue premium of as much as 5bp after tightening 2bp from initial guidance.

A syndicate banker at one of the leads said they indeed bore in mind the Dutch trade.

“Long story short, we had a good deal at a wider spread,” he said. “It was not a surprise for us after ABN Amro achieved a fairly timid response yesterday. Pricing power has clearly shifted from issuers in favour of investors.

“It was a very good deal in terms of the quality and granularity of the book,” he added.

The lead banker noted that ABN Amro’s 15 year deal came 2bp wider than a five year longer Caffil 20 year on Tuesday of last week (11 January).

“So clearly there has been a change in the pricing paradigm,” he said.

Crédit Agricole’s 11 year also came 3bp wider than where compatriot BPCE priced a €1bn 10 year last Wednesday, and the lead banker put the new issue premium at 2bp-3bp, with bankers away from the leads concurring. One noted that the new issue came 5bp wider than where Caffil priced a 10 year tranche of last Tuesday’s transaction.

“A spread differential of 5bp in the two names with just one year’s difference is clearly not right,” he said, “and the market’s reaction has been a little bit of widening in Caffil. What I’m hearing on the trading side is that while in the beginning of January the new deals were pricing flat to secondaries, now the secondary curves are adjusting a little bit towards the new issue prints, so we have seen some widening on the back of that – nothing tremendous.

“I did expect that since the beginning of the year – it didn’t happen in the first two weeks, but now it is sort of kicking in. It’s nothing to do with today’s issuers – it looks like the market is a little full up and investors may be full, having done the first part of their January investments – and whatever comes now, tomorrow and thereafter may face a similar situation.”

Another Crédit Agricole lead banker noted that while the issuer may have paid up a couple of basis points, it had anticipated that spreads overall in the credit markets would be wider towards the end of January, and hence opted to start with higher beta issuance – including an Additional Tier 1 – where the cost of issuing has risen even more since the start of the year than in covered bonds.

He said the 11 year maturity was chosen since the French group has a concentration of maturities in 2032, meaning a maturity longer or shorter than 10 years would be necessary, and that while a long-dated issue might not be straightforward today, it could be trickier later in the year. He said only a handful of accounts who would have participated in a 10 year did not participate because of the 11 year maturity, and that a 10 year would have been priced 1bp tighter, if that.

Royal Bank of Canada (RBC) leads Danske, Deutsche, ING, Rabobank, RBC and SG announced its new issue this morning and opened books with initial guidance of the mid-swaps plus 10bp area for the April 2027 euro benchmark covered bond, expected ratings triple-A. After an hour, they reported books above €1bn, excluding joint lead manager interest. After an hour and 40 minutes, the spread was fixed at plus 6bp on the back of books over €2.85bn, excluding JLM interest. The size was ultimately set at €2bn (C$2.86bn) on the back of final books over €3.35bn at re-offer, excluding JLM interest, pre-reconciliation.

The deal is RBC’s equal-largest covered bond in euros and the biggest single-tranche euro benchmark since April 2020, and syndicate bankers away from the leads were impressed by the trade.

“It was definitely an excellent one,” said one. “The massive size has been a bit of a scarcity.”

Syndicate bankers put the new issue premium at close to 2bp, saying this was necessary to both reflect prevailing market conditions and achieve the large size, with one suggesting a big transaction was implied by the starting 10bp level.

“Doing a €2bn deal out of a three and a bit book totally makes sense,” he added.

Bank of Montreal (BMO) is planning to follow its compatriot into the market with a five to seven year euro benchmark covered bond, after a mandate announcement today. BMO, BNP Paribas, Commerzbank, Crédit Agricole, Santander and UBS have the mandate.

After a mandate announcement yesterday, Aktia Bank leads ABN Amro, Danske, LBBW, Nordea and Swedbank opened books this morning with initial guidance of the mid-swaps plus 4bp area for the €500m no-grow October 2028 Finnish covered bond, expected rating Aaa. After one hour and 15 minutes, they reported books above €1bn, excluding JLM interest. After an hour and 55 minutes, they revised guidance to mid-swaps flat +/-1bp, will price in range, on the back of books in excess of €1.25bn, excluding JLM interest. The spread was ultimately set at minus 1bp on the back of order books at €1.5bn, including €125m in JLM interest, pre-reconciliation.

“This was a no-brainer,” said a syndicate banker away from the leads, “but decently handled.”

The Finnish issuer last issued a euro benchmark covered bond almost three years ago, in February 2019, a €500m no-grow seven year, and syndicate bankers said the rarity of the paper played into the success of the new issue alongside the choice of the short seven year maturity.

“Aktia is a super-rare name from a super-strong but small jurisdiction,” said a banker away from the leads, “so it has all the ingredients for pricing as tight as possible.”

“Obviously, their intention was to have a successful transaction over the line, but I think they could have started a little bit tighter than they did,” he added. “They moved 5bp, which makes total sense to me, but still have 2bp-3bp left on the table.”

According to pre-announcement comparables circulated by the leads yesterday, Aktia March 2026s were quoted at minus 6.5bp, mid, Danske Bank January 2028s at minus 3.5bp, OP Bank April 2028s at minus 6.5bp and February 2029s at minus 5bp.

A lead banker said that the new issue enjoyed a swift response from investors and the final pricing was achieved on the back of minimal sensitivity.

Münchener Hypothekenbank (MünchenerHyp, MüHyp) is set to launch its shortest dated euro benchmark since September 2019 tomorrow, having mandated Barclays, DekaBank, DZ, LBBW, Santander and UniCredit for a €750m no-grow seven year mortgage Pfandbrief, announced today.

In the past two years the German issuer has focused on the very long end, selling 15, short 19 and two 20 year €500m benchmarks, although it also launched a £350m (€419m) long three year deal in July 2021.

“They made the most of it,” said a syndicate banker at one of MüHyp’s leads, “and given how markets are feeling at the moment, it’s a good choice to do something different to the trodden path.”

MüHyp October 2026s were quoted at mid-swaps minus 4.8bp, mid, and its November 2027s at minus 5bp, according to pre-announcement comparables circulated by the leads, while Landesbank Baden-Württemberg (LBBW) yesterday sold a €750m no-grow July 2029 mortgage Pfandbrief at minus 5bp.

“LBBW worked very aggressively,” said the banker, “although they lost some 40% of the book on squeezing the last basis point. We’ll see what is left on the table.”

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.

Roundtable participants:

Matthias Ebert, head of covered bonds, DZ Bank
Sanna Eriksson, managing director, OP Mortgage Bank, and head of investor relations, OP Financial Group
Axel Grosspietsch, buyside research, Ampega Asset Management/Talanx
Anders Hult, head of funding, SBAB
Anders Lund Hansen, head of mortgage ALM, Jyske Realkredit
Fredrik Skarsvåg, CEO, Sparebanken Vest Boligkreditt
Neil Day, managing editor, The Covered Bond Report, and moderator

You can also download a pdf of the roundtable here.

Neil Day, The Covered Bond Report: Few countries met the 8 July deadline for transposing the EU covered bond directive into national law. How important is the process for the covered bond market in general and Nordic jurisdictions in particular?

Matthias Ebert, DZ Bank: The process of establishing a European minimum standard for covered bonds is important, as it reinforces one core aspect that is of vital significance, namely investor confidence in covered bonds as an asset class.

Over the last year, the Covid 19 crisis and its implications for asset quality, liquidity and funding have been at the forefront of many discussions. So I’m not surprised that the transposition of the EU covered bond directive into national law was put on the backburner, and that a number of countries did not comply with the deadline. I don’t think this is a problem, as the amendments to national legislation are rather small in many countries and I don’t doubt that all EU countries will transpose the directive into national law by the deadline of July next year.

Article 2 of the covered bond directive states that the directive applies to covered bonds issued by credit institutions established in the EU. However, as the Directive also has relevance for the EEA, it is my understanding that Norwegian covered bonds will — alongside other Nordic paper — keep their preferential capital treatment if the directive is transposed into national law.

Day, The CBR: Let’s do a quick tour of the Nordics to see how things are progressing in each country. Starting in the Eurozone, Sanna, what can you tell us about Finland?

Sanna Eriksson, OP: In Finland, the national transposition is somewhat delayed, so that the final government proposal is expected in early autumn. We received the draft just before midsummer, and the new legislation should enter into force before the end of this year. The Finnish industry is quite satisfied with the government proposal, as we have actively participated in the process of renewing the law, and it seems that there will be no major changes to the current legislation.

Day, The CBR: Anders, Denmark was from the very start very keen to ensure that the harmonisation process was done in a way that didn’t damage the country’s long-standing model. How significant are any changes to Danish legislation and what stage are you at?

Anders Lund Hansen, Jyske (pictured below): If we look at the changes that we need to implement into the national legislation, they can be considered minor.

As it stands right now, we would be faced with an OC requirement of 2%. To put that into context, previously the capital requirement was 8% of risk weighted assets, but the average risk weight in Danish cover pools was around 22%, 23%. So if we look at the percentages, we are at roughly the same level.

For Danish issuers, the liquidity requirement within the cover pool is limited — I would maybe even characterise it as very limited. We have the balance principle, with a match between the funding and the cashflows within the cover pool, that limits any liquidity requirement. Furthermore, we already have the soft bullet structure in place — having implemented it into Danish legislation some years ago — which also reduces this.

If we look at the OC requirement, it comes on top of our LCR requirement, and also on top of the loan-to-value collateral, where Danish issuers mitigate any breach of LTV limitations on a loan-by loan-basis, so the pillar of funding that needs to be posted has gone up slightly. So on that note, it has gotten slightly more expensive to run a Danish mortgage bank. But again, going back to my initial comments, the changes are minor.

The Danish parliament has been off on summer vacation, so everything has ground to a halt. But what we were keen to ensure was that the changes were implemented in a close dialogue between the issuers and the regulators, and I must say, it definitely has been a constructive dialogue the entire way through.

Day, The CBR: So maybe better to get it right than done on time. In Sweden, the covered bond issuers association was critical of and resistant to the whole need for harmonisation. Anders, how satisfactorily have things progressed?

Anders Hult, SBAB: My general feeling is that Swedish covered bond issuers are pretty OK with the way the implementation of the directive is going. The biggest discussion in Sweden has been around the liquidity requirement and specifically in relation to the usage of soft bullet structures for this purpose, but it remains to be seen where the legislator will finally settle this question.

But we are also in a delayed process. The last thing we heard was that we could see a final proposal for implementation sometime during late autumn, between late October and late November. It’s fair to say that the aim is to have the final application date of July next year, although it remains to be seen whether or not that’s going to be moved.

Day, The CBR: I’m not sure who’s interest it would be in to not delay it if there were countries very far behind, but it’s good to hear it’s not going to be very disruptive within the EU. As Matthias mentioned, the EEA is also affected. Fredrik, I believe Norway was actually ahead of some of the EU countries in preparing for implementation. What stage are you at and what’s the impact going to be?

Fredrik Skarsvåg, Sparebanken Vest: Norway indeed participates in the EU internal market under the EEA, which means that Norway is advised to implement all the EU directives and regulations, especially those related to financial markets. This ensures that Norwegian financial institutions have the same rights, but also the same obligations as institutions established in the EU. Norway is therefore implementing the covered bond directive from July 2022.

As you said, the Norwegians were out with proposals pretty early, but progress stopped during the pandemic and a lot of other regulatory issues arose, so it seems that in usual Norwegian style the legislators will need some extra time, and as issuers we will just have less time to adapt to this. It’s fair to say that typically the Norwegian FSA looks to our neighbour countries for a lead on legislation, but as we’ve already heard today, it’s quite different in Denmark and Sweden and also in Finland.

Since our law is relatively new — at least compared to Germany and Denmark — having been introduced in Norway in 2007, it already looks a lot like what is required under harmonisation.

The main issue is what triggers a soft bullet — a structure Norway has used from the start. We haven’t been able to come up with a solution in the Norwegian Covered Bond Council, nor for the liquidity requirement, whether it uses the final or the expected maturity. The Norwegian FSA typically ends up adopting the most conservative approach, so it was good to hear that our friends in Denmark had some constructive talks with their FSA about OC requirements. We are also hoping for a 2% OC requirement in Norway, even though the FSA indicated in early discussions that they wanted 5% for mortgages and 2% for public assets.

We’ll see how things go. We expect a lot of answers during the fall, when other regulatory initiatives like NSFR and all the other elements of the banking package will also be set into Norwegian law.

Day, The CBR: Axel, what do you make of what you’ve heard? How much difference will the new regime make to you as an investor?

Axel Grosspietsch, Ampega: For Ampega as an investor, harmonisation is a positive issue, since it reduces the complexity of our work. Moreover, the harmonisation process introduces minimum standards that issuers of all European countries have to comply with.

As we see it, the changes to national laws that have been triggered by this harmonisation process are rather minor and don’t make a significant difference to the legal frameworks of most European countries, especially not the Nordic ones. It’s different for Spain, where the proposed new covered bond law improves the position of investors, with greater clarity on the separation of the cover pool, the introduction of an independent cover pool monitor, and in case of insolvency a special cover pool administrator representing only the interests of covered bond investors. Overall, from the perspective of an investor, the harmonisation process has been a sort of non-event for most European countries.

Day, The CBR: 2021’s euro benchmark covered bond market has been characterised by historic low supply, while spreads have generally remained compressed. What are the key drivers behind these trends?

Ebert, DZ: First of all, cheap central bank money and high deposit inflows led to that drop in euro benchmark supply to just around €46bn in the first half of this year. We now expect gross supply to come out in the region of €75bn for the full year. With redemptions at around €132bn, this implies a very strong net negative supply of €57bn, which is exceptional if you look at the last number of years. Moreover, we have special circumstances in some countries, such as Canada, where the Canadian banks have needed to fulfil TLAC requirements by 1 November this year, so their focus has largely been on TLAC funding and covered bond funding was basically put on the backburner. Another specific factor that dampened supply in euros was, for example, the covered bond purchase programme that we have in Sweden, which also diverted supply from the euro market.

And in addition to that significant drop in supply, you have the ECB purchase programmes that have a dampening effect on credit spreads for covered bonds.

Day, The CBR: Anders, can you tell us more about how Swedish euro supply has been impacted, and how that may be related to crisis measures?

Hult, SBAB: It’s not straightforward to pinpoint one single reason for the lower euro supply from Swedish issuers, since there are a few at play and they differ a bit from issuer to issuer. One reason is, of course, that we have a very good alternative, with a deep and well-functioning domestic covered bond market.

Then, as Matthias said, the Swedish Riksbank started to buy, for the first time, Swedish krona-denominated covered bonds as a support measure during the pandemic. They bought pretty heavily from the start, and are still doing so, and this has resulted in a significant spread compression in domestic covered bonds, and that gave us a relative pricing advantage in favour of SEK-denominated covered bonds compared to the euro market. And together with that, we have had very good overall demand in the domestic market.

But, as Matthias also noted, the larger Swedish banks, at least, have seen very large deposit inflows, and that has affected their overall funding needs. They have then tended to allocate the need they still have to the domestic market, rather than going to euros. So the lower needs — resulting from the deposit inflows — and the relative pricing advantage in favour of the domestic market compared to euros, I would say, are the two main reasons.

However, for SBAB, while relative pricing is one consideration, euro funding is definitely an integrated part of our funding strategy. The investor diversification you can achieve is one important factor, and you can to some extent also gain access to different tenors. And when it comes to relative pricing, sometimes it’s cheaper to issue in the domestic market, but sometimes it could be cheaper in the euro market. We therefore like to maintain a regular presence in euros and be able to choose the market where the best trade is available at any time — it’s important to have more than one leg to stand on. So although we had a leap year in 2020 when we did not issue a euro covered bond, this year we returned to the euro covered bond market with a 8.75 year issue in June.

Day, The CBR: I guess you have similar considerations in Denmark, where you also have a very big domestic market. What’s your thinking when you are looking at the euro market?

Hansen, Jyske: I couldn’t agree more. We have a very strong domestic market. Even in the volatile days of March 2020, we actually had bonds being cleared every day — of course, with great volatility in prices, but the market was there.

Even so, our strategy in the euro market is of great strategic importance to us. We are looking to diversify our investor base and from a treasury point of view to make sure that we have access to funding at all times. With the current balance sheet we have, we will strive to remain a frequent issuer in the euro market, and investors should expect to see us there roughly once every 12 to 18 months in benchmark format. It’s important for us to remain relevant so that investors will keep lines on us.

And this, of course, is not an either/or matter; it’s the best of both worlds with the two markets. We have access to some investors on some segments of the curve in euros who we wouldn’t ever see if we issued solely into the domestic krone market. So we are servicing both markets and are happy to do so.

We would love to issue more than we do in the euro market, but this is dependent on balance sheet growth. Back in 2016, we issued three euro benchmarks because we repatriated a lot of mortgage loans from another collaboration here in Denmark, so the Jyske group grew its balance sheet dramatically. Now, we are more back to an organic growth pattern for balance sheet growth, and that results in a lower frequency in the euro market, yet still striving to maintain this frequent issuer profile with the one benchmark roughly every 12 to 18 months.

Day, The CBR: You mentioned you could reach some investors who you’d never seen in your Danish krone issuance. How significant is the international presence in the domestic krone market, and did that fluctuate during the crisis?

Hansen, Jyske: The international investor community is quite important for the domestic market, too. However, the Danish curve is quite segmented, and if we look at where the international investor community has the largest impact, it is in the 20 to 30 year callable segment. That’s been an increasing trend in the past four or five years, and the foreign investor now community holds roughly 34% of all outstanding 20 and 30 year callable bonds. It’s a quite complex product and for the first several years it was more a domestic product, where Danish lifers, pension funds, etc, were buying it in their asset-liability management, and we didn’t see the international community very active. But what we are now seeing is German asset managers being very active and, over the last three years or so, Japanese lifers in particular coming in and taking up large positions in the callable sector of the covered bond market.

Of course, having new investors always leaves you unsure how will they react in times of volatility — will they dump the paper back at the first opportunity? But we have now had a couple of shake-ups — March 2020, at least, was quite dramatic — and the data that we have access to shows that they held their positions through such periods. So the domestic market has benefited from these buy and hold investors, who from an issuer standpoint are the ones you tend to favour.

Day, The CBR: Axel, what’s your view on this? I imagine you want as much choice as possible in euros, but can understand their reasons for being absent.

Grosspietsch, Ampega: First of all, we are always interested in having a certain degree of diversification, so we certainly welcome Nordic issuers coming to the market in euros. If Talanx invests in Nordic covered bonds, the vast majority is in euro-denominated issues.

We are not critical if Nordic banks place a large part of their refinancing within their home markets. Indeed, it would be a red flag if they exceeded a certain level of foreign currency funding and if they would be more or less dependent on foreign cash inflows. If you look at the Nordic markets, mortgage banks are certainly not at such a level yet. It’s also quite understandable that there are some foreign cash inflows, because most Nordic countries have growing populations and housing markets with significant demand on the housing side and corresponding demand for refinancing, in spite of high depositary inflows recently.

Day, The CBR: In some of these Scandinavian countries there are smaller issuers doing sub benchmarks of €250m-€300m — are those deals that you participate in, or just the €500m-plus benchmarks?

Grosspietsch, Ampega: We are primarily active in benchmark issues. To initiate coverage of a covered bond programme, we expect a certain investable amount outstanding. Normally this condition is only fulfilled if there is a certain minimum amount of benchmark issues available.

Day, The CBR: Norway does have a domestic covered bond market, and you have other considerations in funding like deposits and other instruments. What are the considerations for you when coming with a euro benchmark, and when might we see another one from you?

Skarsvåg, Sparebanken Vest: I recognise a lot of what the Anders at Jyske said — we view this as investor diversification, it’s very important for us. Then, as I said earlier, the Norwegian covered bond market is quite new, so it’s not as big and deep as you see in our neighbour countries. So as a bigger bank in Norway, we are somewhat dependent on going to the euro market in particular — we get approximately half of our funding in euros. And we are very much aware that as a small bank from a small country outside the EU, we have to take what the market gives us, to an extent. We try to be present in the market at least once a year, but if there is no funding need, then we cannot fund ourselves just for fun, much as we might like to issue another euro benchmark.

Like the other Scandinavian countries, the mortgage market in Norway is a little bit different from what you see in many European countries. More than 90% of all Norwegian mortgages are variable rate, set at a margin over Nibor, so naturally the all-in cost of funding once it’s swapped back to floating Nibor is most important. The swaps are quite special because they are one-sided — we cannot post collateral as a covered bond issuer — and have quite high credit charges, so typically we have paid up a little versus the Norwegian market when going to the euro market compared. However, that was not the case when we issued our last euro benchmark, in September 2020.

During the pandemic, the Norwegian central bank set up a special liquidity scheme where banks could borrow unlimited amounts up to one year using retained bonds, but that was more liquidity to calm down the markets than funding — we don’t issue one year covered bonds. So when the market recovered in euros we took advantage of it to issue our first green covered bond.

So, for us, 2020 was kind of a Goldilocks scenario. Typically when the ECB is stimulating the market so much, the basis swap gets very expensive, but since they were also stimulating heavily on the other side of the Atlantic, we had both a low credit spread in euros and a low basis swap cost, and it was a lot cheaper than going to the Norwegian market — we actually issued euro benchmarks twice in 2020.

Day, The CBR: The euro market has seemed a little weaker at times in the second quarter. Matthias how would you see the prospects for Nordic issuers approaching the euro market? To what extent is the lack of CBPP3 eligibility for the non-Eurozone issuers a factor?

Ebert, DZ: First of all, one has to consider net supply in euro covered bonds from Nordic issuers, and this year it is around negative €13bn, which is the most negative of all the non-Eurozone issuer communities. Hence, Nordic issuers can expect strong demand from private investors. As you said, spreads bounced off their lows in May and are a bit wider, but funding conditions in the euro market remain very attractive.

Could one say that the execution risk for a Norwegian issuer is higher than for a German issuer who benefits from central bank purchase programme eligibility? I doubt it. Execution risk is a combination of private investor demand and the bid from the purchase programmes. Nordic issuers benefit from strong private investor demand this year due to the heavy net negative supply and their bonds still offer a small spread pick-up. On the other hand, they don’t have the central bank support. In my view, issuers of CBPP3-eligible and ineligible bonds face a similar execution risk in the euro market, and both have to pay a small new issue concession to compensate investors for the uncertainties that exist.

Day, The CBR: Axel, when you’re looking at relative between some of the Nordic credits and the core Eurozone, to what extent does or doesn’t that reflect fundamentals?

Grosspietsch, Ampega: There has been a significant compression in covered bond spreads over recent years, so spread differentials between different countries are currently at the lows, and in our opinion the market doesn’t differentiate fundamental issues that much anymore. It’s also the case if you take a look at spread differentials among Nordic countries. Finnish issues have the tightest spreads, but the differences to non-Eurozone Nordic countries are minor, with 2bp-3bp.

One important issue is ECB support, which should provide some advantage to Eurozone issuers. In the last year about 40% of any new issue book of a Eurozone issuer was from the ECB and the allocation to the ECB was around 20%. But on the other hand, as Matthias mentioned, there is currently much demand in the market from private investors. Declining net issuance — with banks getting sufficient amounts of liquidity from other sources, be it TLTROs, be it ordinary deposits — leaves enough demand in the market that issuers coming from outside the Eurozone shouldn’t be put at a significant disadvantage. That’s also reflected in the pricing and the new issue premiums that currently can be achieved, which are close to zero.

Day, The CBR: Sanna, you’ve been relatively active compared to other Nordic issuers and also some Eurozone issuers. What’s your view on the impact of the ECB?

Eriksson, OP: There are different motives behind TLTRO participation. As we have seen, some banks really use them to replace ordinary market funding. But for others, like us, they don’t affect our regular funding, even if we utilise the favourable conditions of the TLTROs. These banks are the most likely to repay them if the favourable conditions are removed in June 2022, so we’ll see what happens. As of the end of the first half, we had participated in an amount of €16bn, of which €3bn in June.

Day, The CBR: Let’s move on to looking at the Nordic property markets and how they have been supported and have performed since the start of the pandemic. In Denmark, possible overheating and the appropriateness of policies is a perennial topic of conversation. Anders, what’s been done policy-wise, what’s the current situation, and what’s the outlook?

Hansen, Jyske: 2020 was definitely a hectic year in the Danish housing market. If we look back at our Q1 2020 results, we were quite concerned about the development of the Danish housing market, given expectations of increased unemployment, etc, in light of the Covid lockdown — no packages whatsoever were implemented to support the labour market. So, as it clearly states in the old report, we took a management judgement with impairment charges of DKK1bn — in hindsight, we probably couldn’t have been more wrong.

Looking at price developments in Denmark last year, house prices went up 6.5%, apartments went up 8.8%, and holiday homes — which had been lagging the market for many years — went up 9.1% as a result of the travel restrictions. I can’t recall ever seeing price increases like that in the housing market.

It seems like things have cooled down in the last couple of months during the summer break, both turnover and prices. In the first six months, we’ve had price increases of approximately 6%-10% for all three segments. Turnover is still high, but not as high as what we saw in parts of last year.

The Danish central bank and parts of parliament are of course concerned about overheating in the housing market, but if we look at the fundamentals right now, private sector financial savings are currently at 8% of GDP, unemployment is lower now than pre-Covid, even after most of the support packages have come to an end. Urbanisation is still a really big factor in price developments — we have seen the larger cities, the urban areas benefiting most from this trend. And when it comes to the housing burden, interest rates are still low — you are able to get a 1.5% fixed rate 30 year mortgage in Denmark, so the share of disposable income used to service an amortising fixed rate mortgage, although not at an all time low, is extremely low.

So I think we are looking at lower turnover, and definitely lower growth in prices for the coming period. 2020 was quite a special year, I must admit.

Day, The CBR: What’s the situation in Sweden?

Hult, SBAB: We have seen a slightly surprising development in house prices. Prices of apartments and flats have risen approximately 12% over the last 12 months, and house prices have risen even more, slightly above 20% — it has been a one-way market since April-May last year. There are a couple of reasons for that. One is that the economy hasn’t developed as badly as people thought when we entered the pandemic situation. But also the extremely low interest rate environment that we see in Sweden — coming from low central bank rates in general, but also from the Riksbank’s heavy buying of the covered bonds, which has pushed spreads lower — has supported the market. We’ve also seen a slight shift when it comes to demand for dwellings: demand for houses and bigger apartments has increased, coming from people working at home to a greater extent, so we have seen a slightly larger increase in prices of larger properties. So a positive development in the Swedish property market, overall.

Day, The CBR: Fast growth in prices can nevertheless come with problems. If investors do have such concerns, what would you say to them?

Hult, SBAB: You get this question all the time, and it’s a fair question to ask given the developments we’ve seen in the Swedish property market. I would say that from a covered bond investor perspective, you should be able to sleep well at night.

If I should pinpoint one factor that I think could jeopardise the price development of the Swedish property market, I would say that a sharp and rapid increase in interest rates would be a less good development. But looking forward over the next couple of years, we do not forecast any great increase in interest rates, so investors should be able to remain calm from that perspective.

In the long run, you still have the demographic development, and households’ preference for living in apartments, houses, living in the countryside versus the city, and so forth, which will affect the development in prices.

And if you look at overcollateralisation (OC) in Swedish cover pools, they all have OC levels that are quite large. Most covered bond issuers operate with a quite generous OC level. At the end of the first quarter, SBAB had an OC in the cover pool of around 30%. We also stress test our cover pool on a regular basis, and when we conducted this stress at the end of March, even with a drop in house prices of up to 30%, we still had an OC level of around 14% without adding any reserves. So from a credit perspective, investors should be able to feel safe.

Day, The CBR: Have things been going up in Finland, too?

Eriksson, OP: The residential market has been strong in Finland, but compared to the other Nordic markets, prices have on average risen fairly moderately, and they are expected to rise 3%-4% this year and slightly less next year. The market is fragmented, with activity brisk in larger towns, but prices falling in rural areas, for example. If you look at the overall housing market by price to rent ratio, it is quite balanced. Building activity is currently picking up, and hence raw material prices are expected to increase. Last year real estate investments declined, but the level was still reasonably good after a couple of peak years. Therefore the situation is rather positive.

While we see that residential properties are currently doing well, the momentum is weaker for office buildings and the outlook is uncertain, because it remains to be seen if we are able to get back to the office, or do we just make our homes larger and stay working remotely next year, too?

Day, The CBR: What can you tell us about how any employment support or similar schemes developed?

Eriksson, OP: Fiscal policy measures in Finland were smaller than in most of the other advanced economies. The reason for this is that the impacts of the pandemic were relatively modest and we have large automatic stabilisers, like social security including unemployment benefit. So fiscal policy on the whole, including also the EU package, will be fairly neutral in the coming years. Even that is fairly generous, since the economy is expected to be close to potential already next year. So other than parts of the service sector that have been directly affected by the restrictions, the domestic economy here in Finland is already doing quite well.

Day, The CBR: Fredrik, could you give us some colour on the situation in Norway?

Skarsvåg, Sparebanken Vest: If you’d had this talk in April last year, I think nobody would have believed the figures we are talking about today.

As I said, the Norwegian mortgage market is a variable rate market and within a week or two of the onset of the crisis the central bank cut the deposit rate from positive 1.5% to zero, so affordability for most Norwegians was instantly much better. That was the Norwegian version of QE, if I can put it like that.

Without wanting to sound harsh, it wasn’t the typical homeowner in Norway who got furloughed; it was more people in cyclical industries who have come from other countries to work for a period of time and the like. The government was also really quick in putting out 100% unemployment benefit for the first months.

Most Norwegians hoarded a lot of cash: I saw some calculations indicating that NOK105bn has been saved by the population during the pandemic so far. Are they going to spend it now? It will be very interesting to see.

Lockdowns were by far the worst in the capital Oslo, which is also where house prices rose the most. They have now seen a decrease for the last four months, so things are calming down. In Norway as a whole there has been an approximately 10% increase in house prices.

Typically we calm down investors by referring to something we call the “nurse index”, which is compiled by a company called Eiendomsverdi. This is a calculation of what share of housing in each city in Norway a single nurse can afford. While it was 1.5%-2% in Oslo at the peak, in Bergen and Stavanger — the second and third largest cities in Norway, and our part of the country — they can afford one-third of all houses in the market. That gives you quite a clear idea of the absolute levels — they are not London or New York prices, or anything like that.

The central bank has indicated that there will be rate hikes in the next four quarters, so a 1% increase in rates, which we expect to calm down house prices going forward.

Day, The CBR: Axel, are you concerned about the outlook in the region?

Grosspietsch, Ampega: Not really. Most Scandinavian housing markets are characterised by strong demand — Finland, where the population isn’t growing that much, is a bit of an exception. If that development continues, there should be strong support for the residential housing markets.

As was already mentioned, the situation in Finland is mitigated by far lower household indebtedness compared to other Nordic countries. If you look at debt affordability for households, the current situation is pretty comfortable across the region, even better than what it was some years ago because of far lower interest rates. And even though there might be some tapering ahead of us, I guess it’s still some way to go before central banks start to increase rates significantly and change the overall picture.

So yes, we have seen significant price increases over the course of the last year, driven by the special pandemic situation, and if that’s to some extent consolidating and abating a bit, we would interpret it as a normalisation.

Ebert, DZ: In Germany, we are discussing the vacancy rate for commercial property, with many people working from home post-Covid, and how that could affect residential property prices in some major cities. Is that a topic for you in the Nordic countries, too?

Skarsvåg, Sparebanken Vest: It’s a little early to say. In Bergen, where I’m located, things have been quite normal for large periods of the pandemic. But I think a lot of people will work more from home going forwards, so I would be surprised if commercial prices were not affected, with companies needing less space. But I don’t follow the commercial real estate market closely since we only have residential mortgages in our cover pool.

Hult, SBAB: I agree that it’s a bit too early to say. OK, it is logical that commercial property prices will go down if less office space is needed, but we need to see what sort of policies companies adopt regarding working from home versus working in the office now that restrictions are slowly being lifted. We might know this in a year’s time or so, how it’s going to be in the long run. SBAB, as well, has a cover pool that consists of residential mortgages.

Skarsvåg, Sparebanken Vest: Norway will soon get new legislation about working from home. We had special rules during the pandemic because these were extraordinary circumstances. But if people are going to work from home going forward, this must be regulated formally in the employment contract and employers will have the same requirements as in the office with regards to securing a safe and sound working environment — the seat, desk, ventilation, lights, psychosocial aspects, everything. So I think it’s not going to be sufficient to just sit on your kitchen bench if you are going to comply with all the laws in Norway going forward.

Day, The CBR: What are your expectations in respect of tapering and euro covered bond spreads for the rest of the year, and how the market could develop?

Eriksson, OP: We think that the participation of the ECB’s purchase programmes could be slowly tapered. Whatever happens, the communication to the market of any changes will be really important, so we can know what is coming up. What we have seen during this crisis and many others is that covered bond markets also function in stressed situations, so they should be conscious of taking care of the covered bond market.

Ebert, DZ: “Delta-variant” is the buzzword here. Europe has bounced off its lows on the Covid infection front, and it seems to me that we will get a showdown between immunisation progress and the spread of the delta variant during the fall.

In June, the ECB announced that they will keep asset purchases under the PEPP programme at a significantly higher pace than at the beginning of the year, and the ECB thinks that the current increase in inflation is merely temporary and that inflation numbers will drop next year. So our base case scenario is that the ECB will maintain its high pace of asset purchases, roughly €96bn per month, since the economic recovery in the Eurozone is still in its early stages. The emergency programme has an overall envelope of €1.85tr, of which €1.1tr is currently deployed. We think that this will run until March next year, but that the ECB will comment and make some further announcements on the programme in its December meeting. We expect that they will gradually reduce the emergency purchases under PEPP from March next year, and will probably phase it out in August 2022. We expect that the central bank will remain an active buyer in the market via its reinvestments and the other purchase programme, the APP.

As for spreads on euro covered bonds, we expect a slightly widening of around 4bp, to 8bp in the index, by year-end. The key factor in this gradual widening is that tapering fears will cast a shadow over the market throughout the second half. There is also a risk that we will get some spillovers from the US, where we may already see a tapering discussion kicking off post-summer.

Grosspietsch, Ampega: The ECB hardly purchases any covered bonds within its PEPP programme. Instead, they are purchased in the regular asset purchase programmes, and those are not prone to be tapered. As a consequence, I don’t expect the ECB’s support for covered bonds to change meaningfully until at least well into the next year — actually as long as the ECB doesn’t taper its regular purchasing programmes. So from our point of view, there is strong technical support for the covered bond market.

However, once credit spreads of financial credits widen, the covered bond segment will also be captured by that trend. But we expect the effects on the covered bond market to be far more muted. So, in line with what Matthias mentioned, we expect sideways-moving spreads, for this year, and also well into the next year. Future spread movements will largely depend on the amount and timing of tapering and how well that is communicated into the market.

The roundtable discussion took place on 15 July, with participants invited to join via video or telephone, and to make minor updates to their comments before publication.
Main photo: The Nordics, seen from the International Space Station; Source: NASA