Spain’s CRU announced the mandate for a new five year covered bond today (Wednesday) to take advantage of positive spread and rating moves in the periphery, after demand for a Eu1bn long six year SpareBank 1 deal fell short of expectations yesterday.

Cajas Rurales Unidas has hired Crédit Agricole, Nomura, Santander and Société Générale as lead managers for a five year cédulas hipotecarias that could be launched this week, according to a syndicate banker at one of the leads. An investor call is scheduled for this afternoon with launch possible tomorrow.

The deal would be the first Spanish benchmark covered bond since early September, and the issuer’s second since its creation last year following a merger of Cajamar and Cajas Rurales Unidas Sociedad Cooperativa de Credito. It made its debut in May this year with a Eu500m three year that was priced at 290bp over mid-swaps and has since tightened to 225bp over.

The mandate announcement also comes after positive rating actions affecting Spain, with Fitch for example on 1 November having revised the outlook on the sovereign from negative to stable and affirmed its rating at BBB.

CRU’s mortgage backed covered bonds were upgraded from BBB to BBB+ on 10 October, with improvements in the Spanish mortgage market contributing to this. The cédulas hipotecarias are also rated by DBRS, at BBB (High).

CRU’s announcement comes a day after Norway’s SpareBank 1 Boligkreditt priced a Eu1bn long six year issue, with investor resistance to tight spreads in core covered bonds, heavy Nordic supply, and the odd maturity among reasons cited for demand falling short of expectations.

The January 2020 deal was priced at 15bp over mid-swaps, the middle of guidance of the 15bp over area and initial price thoughts of the mid-teens. Barclays, DZ Bank, HSBC and ING lead managed the Norwegian issuer’s transaction.

The last official update about the level of demand was that some Eu800m of orders were placed for the deal – the leads are not communicating the size of the final order book.

A syndicate official away from the deal said it looked like it was a struggle, which he said was surprising, given that he had expected it to come at 15bp over or possibly even tighter.

A lead syndicate banker said that the decision not to communicate the order book size speaks for itself, but suggested the outcome should be kept in perspective.

“There wasn’t the level of enthusiasm that we would have expected,” he said. “It’s not a drama, but not a triumph either.”

The 15bp over level represented a fair price for the quality of the offering, he said, and a tighter spread would also have been justified based on comparables.

Several factors could explain the moderate demand, according to the syndicate banker, such as heavy recent supply from Nordic issuers and investors not having credit lines available, with spreads on core covered bonds also in general having become too tight for many accounts.

“There’s a certain fatigue around spreads,” he said. “There’s a question about how far this is going to continue.”

Covered bond spreads are at their equal tightest since September 2008.

Four of the last six euro benchmark covered bonds have been from Nordic issuers, a series of deals that started with Eu1bn seven year deals for Sweden’s Stadshypotek and SEB before a switch to Norway with a Eu1.5bn five year DNB Boligkreditt issue last week. The Swedish deals are said to be bid around re-offer, with DNB’s transaction having tightened a little.

The syndicate official away from the SpareBank 1 deal said that there has been good demand for recent Nordic covered bonds from bank treasuries stocking up their liquidity buffers for LCR purposes, but that real money accounts are finding levels too tight.

Germany and Austria took 53% of SpareBank 1’s deal, Nordics 20%, Asia 9%, the UK 8%, the Benelux 7%, Switzerland 2%, and others 1%.

Banks were allocated 65%, central banks and official institutions 17%, fund managers 13%, insurance companies 3%, and others 2%.