Banesto will today (Tuesday) extend the reopening of cédulas beyond the three year maturity by pricing a Eu500m June 2016 issue, after a banker on a Sabadell deal yesterday said that the issuer’s “brave” move contradicted expectations about the sequence of supply.

Banco Español de Crédito (Banesto) this morning launched a Eu500m maximum long four year transaction via leads Banesto, Citi, Crédit Agricole, Deutsche Bank and JP Morgan. The order books are closed, with the leads having gathered around Eu1.8bn of orders.

They will price the issue at 235bp over mid-swaps, which follows initial guidance of 245bp-250bp over.

That compares with pricing of 250bp over for a Eu1.2bn Banco Sabadell three year issue sold yesterday (Monday), and a re-offer spread of 210bp over for a vastly oversubscribed Eu2bn three year for Banco Santander on Wednesday. Banesto is a subsidiary of Santander.

Banesto’s last cédulas benchmark was a Eu600m four year sold at 190bp over mid-swaps on 21 March last year (which incidentally also met with around Eu1.8bn of demand).

A syndicate banker away from the leads said that the new issue appeared to be satisfying renewed risk appetite, although the sustainability of this development was difficult to gauge.

He noted that the maturity on Banesto’s deal falls outside of the range of the ECB’s three year long term repo operations (LTROs), and said that this suggested investors were open to buying Spanish risk in general.

Another banker said that 2016 maturity is a good fit for the ECB’s covered bond purchase programme (CBPP2) and other non-bank treasury investors, like asset managers.

He said that the deal seemed to be more of a marketing exercise to demonstrate market access than being driven by liquidity needs.

Banco Bilbao Vizcaya Argentaria, meanwhile, is eschewing the covered bond market in favour of the senior unsecured market by today marketing an 18 month issue at 200bp over mid-swaps.

Marko Nikolic, head of covered bond origination at Nomura, one of the leads on yesterday’s Sabadell issue, said that demand for cédulas supply is not limited to the three year maturity bracket, although this is attractive for bank treasuries looking to stock up on collateral eligible for the ECB’s LTRO.

“Given the drought in cédulas supply investors away from bank treasuries will also be looking to four to five years,” he said.

Pricing on Sabadell’s issue was “punchy”, he said, in that it was in line with where a shorter dated issue, due January 2014, was trading on the bid side.

“The primary market pricing was through the bid side and repriced the curve tighter,” he said. “Offers for three to four year cédulas are non-existent in the secondary, so we felt that appetite was there.”

RBS covered bond analysts said that Sabadell’s new issue and a five year BPCE deal (see separate story) are good for the secondary market, where demand at the short end of the curve up to five years is elevated given a recent lack of supply with those maturities.

“The two new issues will at least partly help to reduce the squeeze in that part of the curve, though without further deals this is likely to just be a drop in the ocean,” they said.

Nikolic said that Sabadell’s deal contradicted market expectations about the order in which benchmark cédulas issuance would proceed after Santander’s transaction.

“Expectations were that another top tier name would follow Santander, like BBVA or CaixaBank,” he said. “Nobody really expected a smaller bank like Sabadell to be brave enough and be the first to follow on.

“But they trusted our feel for the market and got themselves an outstanding transaction.”

A lack of Spanish benchmark supply over a prolonged period means that there is strong demand for cédulas supply in the three year maturity bracket from a range of issuers, added Nikolic, with secondary flows also showing that a deal for Sabadell was possible.

“Nobody is pushing back against non-national champion names,” he said.

After discussing a deal with the issuer on Friday afternoon, leads Bank of America Merrill Lynch, Deutsche Bank, Natixis, Nomura and Sabadell yesterday morning decided that the market was in good enough shape to proceed despite the latest uncertainty around Greece, said Nikolic.

They collected indications of interest on the basis of the 255bp over mid-swaps area, with around Eu800m of orders having been placed when the leads officially opened the order books. The guidance was revised to the 250bp over when orders had crossed the Eu1bn mark, with the final order book nearly reaching Eu1.5bn and the final re-offer spread fixed at 250bp.

In contrast with Santander’s issue, Sabadell’s deal was driven by domestic demand, with Spanish investors buying 59% of the bonds, followed by Germany and Austria with 11%, France 9%, Asia and Middle East 9%, Italy 6%, the UK and Ireland 2%, Switzerland 2%, and others 1%.

Nikolic said that a domestic bias was to be expected given that Sabadell is not a national champion and pricing was relatively aggressive.

“We felt that the international audience was caught sleeping, having expected a BBVA or CaixaBank,” he added. “Many international investors had not done credit work on Sabadell for a long time.”

Banks were allocated 41%, central banks and official institutions 24%, asset managers 23%, insurance companies and pension funds 7%, and others 6%. Around 17% of the bonds were purchased under the ECB’s covered bond purchase programme (CBPP2), according to Nikolic.

National Bank of Canada yesterday added $600m (Eu458m) to a $1.4bn October 2016 issue. National Bank Securities, RBC and RBS priced the tap at 44.5bp over mid-swaps, equivalent to 67bp over Treasuries, on the back of what is said to have been an order book of more than $1bn.