Starting on 16 January (depending on market conditions), Swedbank Hypotek is set to introduce a new benchmark loan (SE0012142206) that matures on 18 September 2024, becoming the longest Swedbank Hypotek benchmark bond. The coupon rate is set at 1%. Swedbank Hypotek targets initial volumes reaching benchmark size (SEK5bn) on the first trading day.
After high gross supply of SEK-covered bonds in 2018, we generally expect smaller volumes in 2019 as redemptions are significantly smaller (difference of more than SEK120bn). Moreover, the slowdown in mortgage lending has continued. In addition, as 5Y SGB rates have once again moved in a negative direction, some investors might be tempted by the potential yield pick-up.
Pricing
SWH194 has the same maturity as the existing LFH517. We would expect the new Swedbank Hypotek loan to trade slightly below that loan in match maturity terms. Longer LF loans appear to trade marginally cheap compared to the Swedbank Hypotek/Nordea/Stadshypotek curves. For instance, LFH516 trades 1bp above the matching NDH5533. In addition, we note a tendency for the SCBC and Stadshypotek spread curves to flatten out beyond the 2023 segment.
Based on market pricing as at 9:30 CET on 14 January, we think a reasonable pricing for SWH194 is 18.5-19.5bps above SWH193. In the charts below, we have assumed a spread of 19bps above SWH193. In matched ASW terms, this means a spread around 38.5bps.
The spread in true ASW terms would be relatively close to matched levels around 38bps.
