Nordic banks are active in primary markets

Headlines

• European CDS indices continue to move wider on tapering fears.

• Greece is back in focus.

• Nordic banks are active in primary markets.

Market commentary

European CDS indices continued to move wider during the first part of the past week, mainly on fears about a forthcoming reduction in liquidity injections from the Federal Reserve (tapering). On Thursday, indices again tightened somewhat after the publication of strong manufacturing data in Germany. Week on week, the iTraxx Europe Main Index widened by around 5bp to 105bp, while the Crossover High Yield Index widened by some 20bp to a level of 430bp.

The Fed Minutes published late on Wednesday seemed to confirm that there is general support among Federal Reserve officials for Ben Bernanke’s plan to reduce bond purchases later this year, although the plan remains dependent on the strength of incoming economic data. Tapering worries have led longer dated European government bond yields to edge higher somewhat more in the periphery countries such as Portugal and Greece than in core countries such as Germany and France. An even stronger impact in terms of rising bond yields and weaker currencies has been noted in various emerging markets such as Turkey, India and Brazil. Earlier this week, the Turkish central bank was forced to raise its interest rate to defend the Turkish lira against further weakening and it cannot be excluded that other emerging markets will also have to take similar measures if the current turbulence continues.

Meanwhile, in Europe, focus again turned to Greece as during the election campaign in Germany the German finance minister Wolfgang Schäuble for the first time officially acknowledged that Greece will at some stage need a third bailout programme. At the same time, he seemed to exclude the possibility of any further debt relief. This is contrary to the previous claims by the IMF, which regards some form of debt relief as a necessity in order to rectify the country’s projected financing gap.

European primary markets saw renewed activity. Among Nordic issuers, it was mainly the banks that were active printing longer dated paper. On Monday, Handelsbanken issued a EUR1.25bn seven-year senior unsecured bond at m/s+60bp, followed on Tuesday by Sparebank 1 SR-Bank printing a EUR500m long five-year bond at m/s+78bp. On Wednesday, Pohjola Bank issued a EUR750m five-year senior unsecured bond at m/s+48bp. In the covered bond segment, Nordea Bank Finland brought a EUR1.5bn fiveyear benchmark bond at m/s+7bp, while Landshypotek issued a SEK4.1bn short five-year bond in two tranches in the Swedish market, with the floating rate tranche priced at 3mSt+50bp. Among Nordic corporates, Finland’s leading airline company Finnair issued a EUR150m five-year bond at m/s+365bp. The bond was well received, with strong demand and an order book well above EUR400m.