Credit spreads continue to narrow
The bond market has been very strong since last summer, with the notorious “wall of money” also moving in. Combined with the active role of the central banks, this has helped to push credit spreads even further down.
Entra’s credit spread, which is normally the smallest in the property sector, has narrowed by a further six basis points (bps) since December. It can now borrow five-year money at 70 bps, and we are approaching the lowest level seen since the financial crisis - which was 56 bps in 2015.
Olav Thon experienced the biggest decline in credit margins during the past quarter. Since 1 December, its credit spread has narrowed by 25 bps – giving a decline of 50 bps from 1 September. The difference in credit margin between Entra and Olav Thon has become substantially smaller. At only 15 bps, it is on a par with the pre-pandemic level.
New property bonds totalling NOK 16 billion were issued in the fourth quarter. Early 2021 has also been active, with a volume of NOK 4.2 billion so far. Many bonds in both investment-grade and high-yield segments have been issued in recent months.
As with the bank market, loan tenors have shortened significantly in recent years. Most bonds today have tenors below five years, and 10-year loans are exceptional.
An example of a bond-financed building in the past quarter is the Vår Energi head office in Stavanger. Financing of NOK 358 million has been secured by a three-year bullet bond with an interest rate of 3.38 per cent.