Italy’s Banca Monte dei Paschi di Siena is preparing to build on its recent return to the senior unsecured market and tomorrow (Thursday) launch its first benchmark covered bond in more than three years, with its OBG, straddling the investment grade threshold, expected to offer an enticing spread.

Banca MPS is holding a global investor call this (Wednesday) afternoon, having earlier announced the mandate for a euro obbligazioni bancarie garantite (OBG) issue, with Commerzbank, Goldman Sachs, MPS Capital Services, RBS and Société Générale as leads.

The intention is for a deal to be launched tomorrow, which would be the issuer’s first benchmark OBG since March 2011, when it sold a Eu1.25bn five year at 180bp over mid-swaps.

The issuer is rated B2 by Moody’s, BBB by Fitch and BBB by DBRS, and its covered bonds are expected to be rated Ba1 by Moody’s and A by Fitch. It is thought that this would make a deal from MPS the first publicly placed OBG with a sub-investment grade rating. Such a move has already taken place in the cédulas market, with Spain’s Cajas Rurales Unidas for example having sold mortgage-backed covered bonds with a Ba2 rating from Moody’s, alongside a BBB+ rating from Fitch, BBB- from Standard & Poor’s, and BBB (High) from DBRS.

MPS has faced difficulties since the start of the European debt crisis and is undergoing considerable restructuring, with a capital increase planned in the near feature to help repay part of a government bail-out loan before an EU deadline for this year. The issuer sold its first senior unsecured issue since July 2012 late last month, pricing a Eu1bn five year issue at 275bp over on the back of some Eu3.5bn of demand.

A banker at one of the MPS covered bond leads said that MPS is “a comeback story”.

“It received a capital injection from the government and its senior unsecured deal worked well, so they have shown to the market that they made a turnaround,” he said. “I am confident it will work well.”

MPS has two benchmark covered bonds outstanding, the Eu1.25bn 4.875% September 2016 issued in March 2011 and a Eu1bn 5% February 2018. This morning these bonds were said to be at 100bp over and 134bp over mid, respectively.

This combined with secondary market levels for other Italian covered bonds would put fair value for a seven year at 160bp over and 170bp over for a 10 year, according to a banker at one of the leads.

A covered bond analyst previously noted that Monte dei Paschi bonds had been outperforming UniCredit OBGs, one of several indications of “the bullish sentiment for spreads”, citing strong demand for higher yielding bonds in general and changes in MPS’ shareholder structure as supporting the movement in MPS spreads.

A banker close to the MPS OBG new issue project said that the covered bonds’ split rating across the investment grade threshold could tarnish the transaction, but that there is the possibility of an upgrade and that an MPS covered bond would offer a spread not typically available in the covered bond market these days.

The widest euro covered bond to be priced this year was a Eu500m five year for Spain’s Banco Mare Nostrum, which came at 190bp over on 8 January.