A Eu750m five year deal for Caixa Geral de Depósitos launched on Friday reopened Portugal’s covered bond market and the issuer’s CFO highlighted how the deal took the Portuguese bank’s funding beyond the end of the ECB’s LTROs and the country’s bailout package.

João Nuno Palma, chief financial officer at Caixa Geral de Depósitos (CGD), told The Covered Bond Report that with around Eu4bn of orders for the bond placed in less than three hours, the positive outcome of the deal shows regained market confidence in the issuer, in Portugal, and in the Portuguese mortgage market.

According to Palma, the deal is the first Portuguese covered bond benchmark since March 2010, and came almost exactly three years after CGD’s last covered bond transaction, which was a Eu1bn 10 year trade issued on 25 January 2010.

Placing a five year transaction meant that CGD was able to borrow funds maturing in 2018, three years beyond the end of LTRO funding.

“We were able to use our collateral on the market again,” said Palma. “This is impressive”.

Palma added that the five year maturity also allows the issuer to raise funds dated beyond the end of the Portuguese bailout programme.

Leads Caixa Banco de Investimento, Commerzbank, Credit Suisse, Société Générale and UBS tightened the spread by 30bp, from the 315bp over mid-swaps area to 285bp over.

Palma said that at 285bp over mid-swaps the deal came at virtually the same level as a comparable five year deal in July 2009, meaning that the cost of borrowing has not risen significantly for the issuer.

Palma also noted that CGD’s covered bonds were priced only 35bp wider than a Eu1bn five year deal for Spain’s Banco Sabadell on Friday despite a three notch rating difference between CGD’s obrigaçãoes hipotecárias and Sabadell’s cédulas hipotecarias, which are rated Baa3 and A3, respectively.

The demand for the deal was unexpected and overwhelming, said Palma, who highlighted a 90% take-up by international investors, including a 3% stake with US investors and 1% with the UAE.

“This shows that international investors in these regions are opening their investment strategy to peripheral issuers,” said Palma.

Some 220 accounts participated in the transaction. German and Austrian investors took 19%, the UK 19%, France 13%, Spain 10%, Portugal 9%, Nordics 6%, Switzerland 4%, Italy 2%, the Benelux 2%, Andorra 1%, and others 14%. Asset managers were allocated 58%, banks 20%, insurance companies 8%, private banks 3%, and others 11%.

The much rumoured Portuguese comeback hit the market on a Friday on the back of a positive week for peripheral covered bond issuance

“We saw a lot of interest that week and thought there was a good market window,” said Palma.

“On Thursday the ECB announced that they would not reduce the interest rate any further. This gave investors direction, and we thought they would be very keen on our deal the day after, even if it was a Friday.”

CGD is the second peripheral issuer to have reopened a non-core covered bond market after at least two years with no supply after Bank of Ireland Mortgage Bank launched a Eu1bn three year deal on 13 November, which was the first non-government guaranteed bank benchmark on the Irish public market since September 2009.

But unlike their Irish peers, Portuguese issuers decided to follow the unsecured funding route before moving to secured. Banco Espírito Santo issued a Eu500m senior unsecured bond whose order book reached Eu3bn on 8 January, after it had reopened the Portuguese senior unsecured market in October, when it sold a Eu750m three year senior unsecured deal. Caixa Geral de Depósitos also launched a senior unsecured deal, a Eu500m three year trade, in November.

“We were preparing the two transactions, but we saw an opportunity in November and we took it with a senior unsecured as it takes more time to prepare the collateral for a covered bond,” said Palma.

Palma expects the deal to open up the market for a renewed stream of Portuguese covered bond issuance, as long as spread levels remain viable.