November 20, 2013 / 9:57 AM / 4 years ago

UPDATE 1-Sweden ends foreign currency haul with punchy euro bond

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By John Geddie

LONDON, Nov 20 (IFR) - The Kingdom of Sweden is set to issue its last foreign currency bond of 2013 on Wednesday, capping off a year where it is has raised a larger than expected volume to bulk up its central bank’s foreign currency reserves.

The Nordic sovereign, rated Aaa/AAA/AAA, is gathering orders for a new EUR1bn no-grow three-year bond, a deal which will bolster its reserves in case its ability to fund deteriorates.

“If everything goes well it is fair to assume this will be Sweden’s last foreign currency bond issue in public markets this year,” said Maria Norstrom, the head of funding at Sweden’s debt office, which on-lends the proceeds to the central bank.

Sweden is offering the bonds with a fairly expensive price tag because of the issue’s relatively small size.

This contrasts with its larger USD3bn issue of the same maturity issued back in August, which was deemed to have paid a fairly generous new issue premium to investors.

Lead managers Barclays, CA-CIB and Danske opened order books on its latest bond sale on Wednesday morning with guidance at mid-swaps minus 27bp area, which at current market rates is equivalent to a yield of just 0.36%.

Fair value calculations also suggest the new deal is coming through Sweden’s outstanding euro bonds in the secondary market.

Sweden’s 0.625% Feb 2015 and 0.875% Jan 2018 bonds were bid at mid-swaps minus 27.8bp and 23.9bp respectively on Wednesday morning, placing fair value on the November 2016 issue at mid-swaps minus 25.5bp.

The deal is also set to price through Triple A rated World Bank’s EUR1bn 0.375% December 2016 bond, which was issued two weeks ago at mid-swaps minus 28bp but is currently bid at minus 25.6bp, according to Tradeweb.

The bond is expected to price later on Wednesday but the aggressive pricing level may not sit well with investors, who have shown stronger demand for riskier assets as Europe’s outlook has improved and after the European Central Bank cut interest rates two weeks ago.

Sweden this year so far has issued foreign currency bonds equivalent to SEK128bn (USD19.33bn) via public issues, commercial paper and private placements - leaving it with just SEK13bn to hit its expected SEK141bn target.

In 2012, it issued SEK112bn in foreign currency bonds, and expects to raise SEK60bn in 2014, the debt office stated in its latest Central Government Borrowing forecast. (Reporting by John Geddie, Editing by Anil Mayre)

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