Starting on 17 September (depending on market conditions) Stadshypotek is set to introduce a new benchmark loan (SE0011063015) that matures on 1 March 2024 and will fit between SHYP1587 (June 2023) and SHYP1594 (September 2028). The coupon rate is set at 1.5%. Stadshypotek targets an initial volume reaching benchmark size within the first trading days.
Amid the ongoing hunt for yield, longer dated covered bonds continue to be in good demand. Moreover, in our view, the heavy supply we saw in the spring is likely to abate in coming months. Lending growth has recently started decelerating more sharply and mortgage institutions refinancing needs will be significantly less in 2019.
Although there are no other covered bonds at that exact same point on the curve, there are outstanding covered bonds reasonably close to SHYP1588 such as SWH193 and SEB578 (December 2023). Covered bond ASW curves tend to flatten out beyond 2024, although this will probably not affect SHYP1588. As usual, we expect market pricing to focus primarily on matched-maturity swap spreads, a rather odd but well-known market inefficiency.
Based on the market pricing at 14:30 CEST on 13 September, we think a reasonable pricing for SHYP1588 is between 18.5bp and 19.5bp above SHYP1587. In the charts below, we assume a spread of 19bp above SHYP1587. In matched ASW terms, this means a spread around 24bp
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.