Sweden – introduction of SHYP1588

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.

Pricing

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

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