Spain’s Bankinter was today (Thursday) overwhelmed with demand for a Eu500m no-grow three year covered bond that benefitted from a lack of supply and boost in sentiment toward the periphery, with a lead syndicate official noting that the deal outperformed the broader market.

More than Eu3bn of orders were placed for the cédulas hipotecarias, which leads Bankinter, JP Morgan, Natixis and Nomura will price at 335bp over mid-swaps, 20bp tighter than where the deal was initially pitched. After initial price thoughts of the 355bp over area, guidance was set at 345bp over, with the leads quickly moving to set the spread tighter, at 335bp over, according a syndicate banker on the deal.

The transaction is the first new covered bond benchmark in over three weeks, and the first such supply from Spain since September, when Banco Santander subsidiary Banesto and then Banco Sabadell tapped the market amid a flurry of euro covered bond issuance.

A syndicate banker away from the leads said that Bankinter had planned to do a deal at this time, too, but that the issuance window closed before it was able to do so, with a Eu500m two year issue for Sabadell somewhat “ropey”.

At 335bp over mid-swaps, Bankinter’s deal is coming 40bp tighter than where Sabadell’s issue was priced.

Bankinter this morning announced third quarter results, paving the way for launch of the cédulas transaction that was also made possible by an improvement in sentiment toward Spain and the periphery after the sovereign was spared a downgrade by Moody’s. The rating agency on Tuesday night affirmed Spain at Baa3, with market participants having expected a downgrade to sub-investment grade.

Spanish government bonds are said to have tightened some 30bp over the past two weeks, with a minor rally following the Moody’s rating action.

Syndicate bankers away from the Bankinter deal said it was impressive and made sense in the context of a recent risk rally taking in Spanish government bonds, with a covered bond tap by Italy’s UniCredit yesterday (Wednesday) also illustrating the strength of peripheral demand.

“Bankinter isn’t the easiest name,” said one, “but the deal fits with a better mood towards Spain and the periphery, and it’s a defensive maturity.”

He suggested that the deal would come with a coupon in excess of 4%, and that this would be attractive.

Another syndicate banker said the issuer had obtained a strong result.

“It seems like a total blowout,” he said. “It’s been a good day for Spain, with a very strong auction this morning, and the deal shows there is still a lot of peripheral demand, and that second and third tier names have access to the market, at least in covered format.”

At 335bp over, the transaction was coming through secondary market bid levels, he said, putting Bankinter November 2014s and March 2017s at 345bp/315bp over and 355bp/320bp over, respectively.

Another cautioned against reading too much into secondary market levels, saying that these are quite illiquid – “you can drive a bus through the bid-offer” – but that the deal looked to be coming some 15bp through the bid side and that the level looked sensible.

A syndicate banker on the deal said that the leads achieved the aggressive pricing that was targeted, and that the transaction was coming through November 2014s on the bid side.

He said that the deal had outperformed the broader market today, with Bonos a little bit tighter but credit indices wider.

“The issuer is very happy, and the group is ecstatic with the result,” he said.

The spread over Bonos was around 55bp-60bp, according to syndicate bankers.

The emergence of any follow-up supply is likely to be largely a function of issuers emerging out of blackout periods, said bankers, with one saying that any issuer who is in a position to enter the market will be “chomping at the bit – that’s how hot this market is”.

However, Bankinter’s deal was the only euro benchmark FIG supply in the market this morning.

Italy’s UniCredit yesterday increased a Eu750m January 2018 obbligazioni bancarie garantite (OBG) issue by Eu250m. Leads Crédit Agricole, Natixis, Morgan Stanley and Société Générale priced the tap at 190bp over mid-swaps, 100bp tighter than where the initial deal was launched in August.

French accounts are understood to have taken 39% of the bonds, the UK and Ireland 24%, Benelux 9.4%, Italy 8.1%, Switzerland 7.7%, Germany 5.5%, Iberia 2.1%, and 4.2%.