Banco Bilbao Vizcaya Argentaria and Banesto rode a strong rally in cédulas spreads to launch benchmark covered bonds this (Monday), and achieved pricing as much as 10bp inside initial guidance.

The last benchmark Spanish covered bond was a Eu500m five year deal for Unicaja priced at 250bp over mid-swaps on 9 March.

Despite the two deals coming on the same morning, syndicate officials reported no congestion problems. And bankers expect further Spanish supply, with Banco de Sabadell seen as a candidate, possibly with a three year – it sold a two year at 260bp over in early February.

“There are a fair amount of second tier names looking,” said one. “They are all hoping that the tier one deals will go through successfully and tighten, and then the second tier can come at better levels.”

BBVA, Madrid

BBVA reopened Spanish supply, launching a four year deal. An order book of more than Eu4bn allowed the leads to revise the spread tighter by some 10bp. Spanish government bonds were said to have rallied about 13bp this morning.

“They started at the 165bp area and got down to 155bp with a huge order book, so it sounds like they did a very good job,” said a syndicate official away from the leads. “BBVA is definitely a flagship for the Spanish, like Santander, and is more or less able to come at any time.”

Several bankers had been recommending that Spanish issuers approach the market last week as Spanish bonds rallied, but a syndicate official at one of the leads said that today’s issuers had been rewarded for their patience.

“We suggested they wait,” he said. “We had seen Spanish govvies perform, but the covered bonds hadn’t tightened. Then, cédulas caught up towards the end of the week.

“BBVA would have come at around 170bp last week and now we are talking about 160bp or even tighter on the back of this rally.”

Waiting until today nevertheless left open the risk of global events, such as the air-strikes on Libya, disrupting the market.

“Yes, but the market had a constructive opening this morning,” said the syndicate official. “Overnight, Asian stock markets were stable.

“There has been a lot of discussion about the impact of events, but no shifts in asset allocation. Peripherals are tighter than they were last week and there is still confidence in covered bond spreads.”

The syndicate official said that at the re-offer level there was “hardly any” new issue premium in BBVA’s deal. Another banker at the leads said that illiquidity meant that secondaries did not provide clear guidance, but that levels on BBVA outstandings of 158bp for a short four year, 162bp for a four and a half year, and 172bp for a five and a half year were taken into consideration. He added that senior unsecured prices were also challenging given illiquidity, but noted that five year BBVA CDS were at 213.

Banesto is expected to price a Eu600m four year deal at 195bp over mid-swaps, after having gone out with a range of 195bp-200bp over for a deal of Eu500m-Eu600m. Bank of America Merrill Lynch, Crédit Agricole, Natixis and RBS had built an order book of more than Eu1bn by around 1230 CET.

“It’s not a Eu4bn book like BBVA,” said a banker away from the leads. “It’s nevertheless a success since the second and third tier names are happy just to be in the market.”

A syndicate official at one of the leads cited as pricing references January 2015 and January 2016 Banesto issues at 182bp and 190bp, respectively, while a La Caixa four year launched at 200bp over two weeks ago was at around 185bp over.

“Banesto is not in the first tier,” said another banker not involved in the trade, “but it is one of the good Spanish names so it shouldn’t be a problem coming when BBVA die, especially given the lower size.”