Caja Madrid tapped into the rally in Spanish covered bonds by launching a three year benchmark this (Wednesday) morning, in spite of a softer tone to the market as Portugal’s government neared collapse.

Caja Madrid, Madrid

The Spanish bank went out with guidance of the 240bp over mid-swaps area at 1030 CET and leads Caja Madrid, Credit Suisse, HSBC, Natixis and UniCredit had taken orders of around Eu1bn by midday and fixed the spread at 240bp over, with the books closing at 1300 CET.

The pricing in line with guidance contrasts with the execution of Banco Bilbao Vizcaya Argentaria and Banesto four year deals on Monday, which were launched into a strongly rallying cédulas market and were priced some 10bp inside initial guidance.

“We are witnessing a very good environment for Spanish names,” said a syndicate official away from the leads. “The level of 240bp over is not cheap, but it is good for issuance.

“We have seen a good rally in Spanish paper and now a little bit of consolidation,” he added, “with the market feeling a bit weaker this morning. And Caja Madrid is clearly not in the same league as BBVA.”

The Portuguese government appeared close to collapse on Wednesday as opposition parties withdrew support for austerity measures, raising expectations that the sovereign will have to seek a bail-out.

Finding the right pricing for new Spanish issues remained challenging, said bankers. A syndicate official said that he would not be surprised if banks were bidding at levels 30bp apart for Spanish mandates this week given the difficulty in price discovery and a banker at one of Caja Madrid’s leads echoed this sentiment.

“As some of the other recent Spanish deals have shown,” he said, “it is very difficult to judge when the govvies are moving around so much. Also, Caja Madrid has not launched a benchmark since September last year so its outstandings are a bit stale.”

Santander was this morning selling a three year senior unsecured issue and guidance on that was revised from the 180bp area to 175bp-180bp over, and fixed at 175bp as the order book went over Eu1.5bn, comprising more than 200 accounts.

Caja Madrid had been widely tipped to launch a benchmark into the improving market, but as it is being merged into Bankia with six other Spanish savings banks, it also had to contend with documentation issues.

Caja Madrid’s deal was announced as a “benchmark” and the size was yet to be finalised a The Covered Bond Report went to press, but with the book over Eu1bn, a size above the Eu500m minimum typical of benchmarks was expected.

Finland’s OP Mortgage Bank launched a five year euro benchmark this morning, with Deutsche Bank, DZ Bank, Pohjola and UBS going out with guidance of the 35bp area. A syndicate official at one of the leads said that the book was building well and the spread was fixed at 35bp over, with the books due to close at 1330 CET.

“It’s very interesting,” said a syndicate official away from the leads. “It’s a strong issuer and we expect it to go well.”

DnB Nor Boligkreditt followed Swedbank Hypotek into the dollar market yesterday, selling its second $2bn five year benchmark, and further US targeted Nordic issuance is expected. SEB AB is said to be looking to tap the market and Nordea Hypotek to be marketing to US accounts.

Norway’s DnB Nor launched its debut, a $2bn five year at 68bp over mid-swaps, in October. The new issue was priced at 66bp over mid-swaps by leads Barclays Capital, Bank of America Merrill Lynch, JP Morgan and Morgan Stanley.

Some 55 to 60 accounts participated in the deal and more than 90% of the bonds were sold in the US, according to a banker close to the issue. He said that the after-swap funding cost was comparable with euro levels; although the spread was 2bp tighter than on DnB Nor’s previous five year, the basis swap was less favourable.

Swedbank Hypotek’s $1bn five year fixed rate issue – sold on Monday alongside a $1bn three year floating rate note – was priced at 71bp over mid-swaps. A market participant said that Swedbank’s deal had provided a good reference for DnB Nor.

“The Swedbank deal was very good even though they came at quite an aggressive level in five years,” he said. “They hadn’t been expected to come so tight, and the fact that it went well was possibly advantageous for DnB Nor.”