Bankinter launched a Eu500m tap of a 2016 cédulas issue to provide the first southern European benchmark covered bond supply since the middle of March today (Monday), with conditions looking promising for any further peripheral issuance this week, according to a banker.

Sweden’s LF Hypotek was also in the market today, selling a Eu500m seven year deal that a lead syndicate banker said was not negatively affected by the presence of a higher yielding transaction. (See separate story).

A covered bond analyst said the coupon on Bankinter’s deal (2.75%) is the 10^th highest among all new euro benchmark covered bonds year-to-date.

Leads Barclays, Natixis, Nomura and Bankinter lead managed the Spanish bank’s increase, building an order book of nearly Eu1bn excluding lead orders. The spread was fixed at 172bp over mid-swaps after the leads set initial price thoughts in the 180bp over area and guidance at the 175bp over area, with the tap ultimately coming flat to the bid side, according to a lead syndicate official. A banker away from the transaction saw it coming flat to secondaries.

Another syndicate banker on the transaction said that the underlying bond was trading at around 170bp-175bp over before the tap was launched, and that it met with a good response from a diverse group of accounts.

The deal is the first benchmark supply from a southern European issuer since 12 March, when Spain’s CaixaBank launched a Eu1bn five year cédulas at 210bp over mid-swaps. The last so-called high beta supply came from Bank of Ireland Mortgage Bank on 15 March, a Eu500m five year transaction re-offered at 190bp over.

A syndicate banker away from the leads said that Bankinter took the right decision in tapping an existing bond rather than launching a new issue.

“Increasing the existing Eu500m bond was the right approach,” he said. “They have plenty of room in the 2016 bucket, and they have limited funding needs.”

The known deal pipeline in euros appears to be thin, according to syndicate bankers, although they say many issuers are looking at the market. One said that other Spanish issuers besides Bankinter should be interested in covered bond issuance at the moment as “technicals are really strong for the peripherals this week”.

“We have Eu35bn negative net supply in the Spanish and Italian government bond markets and positive news from Italy on Saturday regarding the formation of a new coalition government,” he said. “It would make sense for peripheral issuers to come to market now.”

Banco Sabadell has been mentioned in this context, with one syndicate official saying there was conflicting information about whether it has mandated or not.

Another raised the question of whether a run of Swedish supply might have Norwegian issuers contemplating taking advantage of a buoyant market.

The week ahead is not a clear one in the euro market, what with a public holiday in many parts of Europe on Wednesday, an ECB meeting on Thursday, and non-farm payrolls coming out on Friday, but a syndicate official said that there is still time for more transactions to be launched, and that the ECB meeting on Thursday need not be an obstacle.

More Yankee covered bond supply could hit the dollar market, meanwhile, according to a US-based syndicate official, after Norway’s SpareBank 1 Boligkreditt sold a well-received $1bn five year deal on Thursday. French issuers are said to be looking, for example.

“There hasn’t been a lot of supply in dollars this year and we’ve reached new tights in terms of spread levels,” said the syndicate banker. “Deals from DNB, Swedbank and SpareBank demonstrated that there is demand at these new tight levels.

“I do expect generally busy supply this week, and it wouldn’t shock me to see senior unsecured or covered bonds in there, although I’m not aware of any concrete plans in covered bonds.”