Kutxabank met with strong international demand when it yesterday (Monday) priced a Eu1bn seven year covered bond, the tightest cédulas of the year and the tightest in the maturity since January 2010, with an official at issuer noting how it had done so in spite of market conditions.

Leads BBVA, Commerzbank, Crédit Agricole, HSBC and Nomura went out with initial price thoughts of the mid-70s over mid-swaps for the Spanish issuer’s first benchmark covered bond since January 2013. The spread was then tightened to guidance of 70bp-72bp, before the leads revised the spread tighter and set it at 70bp over with more than Eu1.6bn of orders.

“We did not expect much demand over the Eu1.5bn mark, because the current yields for covered bonds are not too attractive for investors,” Inigo Lopez, head of capital markets and investor relations at Kutxabank, told The Covered Bond Report.

He added that the bank had been looking to price the bond in the 65bp-70bp over range.

“Our expectations were dented after the strange situation in peripherals on Thursday afternoon,” he said. “So to be able to price at 70bp over, the tightest cédulas in the seven year maturity since January 2010, left us feeling pretty happy.”

A syndicate banker said that there had been a “nervousness” in the market at the end of last week surrounding the outcome of upcoming Greek elections, which had resulted in a difficult two days for peripheral spreads.

According to Lopez, Kutxa had been clear about its funding plans for 2014 from the outset of the year, and was determined to issue at least one cédulas. Initially, he said, the bank had been intending to issue in the second half of the year.

“However, we noted that the markets have performed well in this first half,” he said. “So we decided that now was the right time to issue, rather than to wait for September and October, where we might find some noise over the coming stress tests.”

The bank completed a four-day roadshow on Thursday, and Lopez said that, based on investor feedback, the bank was looking to come to market as soon as possible.

“We wanted to come close to the completion of the roadshow, but the market turbulence on Thursday afternoon meant that this was not possible,” he said. “Yesterday morning conditions seemed to have calmed and we decided to go for it.”

Lopez said that he had expected demand to come mainly from Germany, and that the level of non-domestic investment the bond received had pleased the bank and helped to highlight the quality of the issue, as did the quality of the accounts involved.

Germany and Austria took 42%, the UK and Ireland 18%, Iberia 15%, the Benelux 8%, France 5%, the Nordics 4%, Switzerland 3%, Asia 3%, and Italy 2%. Funds were allocated 71%, banks and private banks 12%, insurance companies and pension funds 11%, and central banks and SSAs 6%.

“At the end of the year, we will have Eu2.2bn in outstanding maturities,” added Lopez. “No decision has been made, but the option to return to the covered bond market again this year is a possibility.”