UniCredit launched the first benchmark Italian covered bond in almost a year this (Tuesday) morning, a surprise Eu750m no-grow long five year deal that came some 100bp through Italian government bonds and, according to market participants, showed a welcome appetite for riskier names.

The last obbligazione bancarie garantite was a Eu1bn 10 year deal, also for UniCredit, launched on 25 August 2011. The deal is also the first new benchmark covered bond from any jurisdiction in three weeks, since a Eu1.5bn seven year ABN Amro trade on 24 July.

“What a way to reopen the market,” said a syndicate official away from the leads. “Not Münchener Hyp. Not BNP Paribas Home Loans. But UniCredit OBGs.”

Market participants were pleased to see a credit from the two peripheral sovereigns that have been under most scrutiny lately – Italy and Spain – be able to access such funding.

“It demonstrates the rally we have seen from a risk appetite perspective extending through to some Italian names, which is great,” said one. “It shows you can sell product that is not completely without risk, which is constructive.”

Lead managers Crédit Agricole, Natixis, Société Générale and UniCredit built an order book of more than Eu1bn within around half an hour of opening books this morning with guidance of 290bp-295bp over mid-swaps. UPDATE 1338 CET: The deal has been priced at 290bp over.

The covered bond is the first to come substantially through the sovereign of an issuer, with previous issuance only having at best come marginally through respective government bonds. Bankers put the pricing at around 100bp inside Italian government bonds.

“That’s a very strong message about this particular credit and is something I expect UniCredit will use from a marketing perspective,” said a syndicate official, “although I think it says less about the bank than about the fall in perceptions of Italy.”

Market participants gave varied opinions of the new January 2018 issue’s pricing relative to UniCredit’s secondary curve.

One said that on an asset swap basis UniCredit’s outstanding 4.25% July 2018s were quoted at 280bp/255bp and its 3.375% October 2017s at 275bp/250bp, and that the new issue therefore came around 15bp over fair value. He also said that it was worth noting the near 40bp pick-up over where the outstanding paper was offered.

However, another syndicate banker said that outstanding 2017 and 2018 UniCredit paper was quoted on TradeWeb at 280bp-290bp over, and that he would therefore consider the new issue premium to be “optically pretty much flat” to secondaries, while noting that bid/ask spreads for UniCredit paper on the platform were up to 40bp.

The last significant issuance from an Italian bank came when Intesa Sanpaolo on 3 July sold a Eu1bn three year floating rate note. That was priced at 410bp over mid-swaps and a syndicate official said that UniCredit’s senior paper was trading in the 425bp over area, with the covered bond therefore coming substantially tighter, around 135bp through that.

Buoyed by the expected success of UniCredit’s transaction, bankers were optimistic about seeing further supply before the end of August.

“Hopefully this will tee up more deals in the next couple of weeks,” said one.

While UniCredit’s Italian peers are expected to look closely at today’s deal, one syndicate official suggested that Spain’s leading banks, such as BBVA and Santander, might not yet be prepared to issue.

“My guess is that the Spanish probably won’t move,” he said. “Even if Spain has tightened some 50bp in the past couple of weeks, they were insistent that they would not do anything above the 200 area.”