Banco de Sabadell is set to launch the first peripheral euro covered bond in four weeks tomorrow (Friday), a five year euro issue to which a 10 year tranche may be added, which bankers said could indicate the extent to which similar supply could follow.

The Spanish bank this morning announced the mandate for the euro denominated five year issue, to which a 10 year tranche may be added dependent on investor demand, via leads Banco Sabadell, Barclays, Deutsche, HSBC and Lloyds. A syndicate official at one of the leads said the new issue would likely be launched tomorrow.

The last euro benchmark from a Spanish issuer was a Eu1bn 10 year issue from Banco Popular Español, which was sold on 7 April at 50bp over mid-swaps, while the last from a peripheral issuer was a Eu1bn seven year from Bank of Ireland Mortgage Bank on 29 April at 5bp over.

The lead syndicate official said that Banco Sabadell November 2021 paper was quoted at 3bp over mid-swaps, mid, and Santander 2020s at 2bp through.

Bankers away from the leads said the trade would be an interesting test of the market.

“It is a sensible move to give themselves the option of not going ahead with the 10 year tranche,” said one. “In these market conditions, you would think five years definitely works better. With a 10 year I think the execution risk will still be very high.

“It will be very interesting to see how this goes.”

Another banker said he believed the issuer would be able to go ahead with the 10 year tranche.

“It’s a good move,” he said. “There has been a lack of supply so I think they’ll be able to do it.

He added that it was likely the issuer and leads will execute on Friday because of a slim window resulting from public holidays next week, when Italy will celebrate Republic Day on Tuesday and some areas of Europe, including some regions in Germany, will mark Corpus Christi on Thursday.

“It will be very difficult to find a two day window next week, so moving on Friday makes sense,” he said.

While stating that issuers have mostly been considering shorter dated deals after market volatility in recent weeks, bankers said other issuers will look at the longer end of the curve if the new issue is a success.

“If they manage to do the 10 year and do it well, issuers will see what price it offers and may well be persuaded to follow,” said one.

Another syndicate official agreed.

“It this goes well, the pipeline could build quickly,” he said.