Banco Popular Español was able to print a Eu750m six year covered bond today (Wednesday), with bankers saying the issuer got it right in prioritising size over spread, after being forced wider by the pricing of a Caja Rural de Castilla-La Mancha debut yesterday.

Leads Commerzbank, Credit Suisse, Banco Popular, RBS and UniCredit launched the Spanish issuer’s Eu750m six year deal with initial price thoughts of the 45bp over mid-swaps area, moving to guidance of 45bp the number with books at around Eu500m.

Syndicate officials away from the leads said Banco Popular had gone out with a wider spread than it otherwise would have because a Eu500m six year debut issue from Caja Rural de Castilla-La Mancha was yesterday (Tuesday) also priced at 45bp. They added that the credits are not exactly comparable, but noted the issuers have the same ratings.

“It’s debateable how relevant it is, but it looks as though they had their eye on that deal as a reference point,” said one. “Market conditions notwithstanding, you would think if it wasn’t for La Mancha’s deal yesterday then Popular would have started tighter.

“But they can’t change what’s happened, and they’ve done the right thing in being conscious of where La Mancha landed.”

The syndicate officials calculated fair value based on the issuer’s secondary curve for the new issue at around 30bp-35bp, seeing the issuer’s September 2020s being quoted at around 26bp, bid. However, they said secondary levels were squeezed and did not reflect where bonds are really trading.

“Bearing that in mind, just putting 2bp, 3bp or 5bp on top of secondary levels doesn’t work right now,” he said. “I think they’ve done the right thing in accepting that the market is going wider, putting a decent premium on the deal, and just getting the size done.

“Therefore I think this is a strong transaction.”

Another syndicate official away from the leads, while stating that Banco Popular had done well to get the size done, said it appeared the issuer had not gained sufficient momentum to tighten the spread.

He suggested that recent deals from second tier Spanish names had struggled to find demand because of relative value versus Spanish government bonds. He noted that, with the six year swap rate at 0.49% this morning, Banco Popular’s new issue was around 35bp more expensive than Spain’s January 2022s.

The new issue is Banco Popular’s third euro benchmark covered bond of the year, following a Eu1bn 10 year issue in March and a Eu1.25bn five year on 21 August.

After Caja Rural de Castilla-La Mancha’s Eu500m six year debut issue yesterday, David Peces Romero, head of department, financial risk, at Caja Rural de Castilla-La Mancha, said the issuer was satisfied with the outcome of transaction taking into account the market backdrop, which he said made the deal more challenging than had been expected. He said that the issuer decided to proceed on the basis of investor feedback and because there were no similar issues in the market.

After the debut covered bond Caja Rural de Castilla-La Mancha will issue further benchmarks and try to become as regular an issuer as conditions allow, he added.

Meanwhile, bankers said they expect further issuance tomorrow (Thursday), with Nordic issuers in particular said to be eyeing the market. However, they noted that many of the announced deals in the pipeline had been cleared this week.

“Hopefully, with those deals out of the way, if activity slows then demand will rebuild a bit more and premiums might come down,” said one. “But on the flipside, if activity continues at the same pace as yesterday then things might stay challenging.”

Another syndicate official said he hoped the market would get a break.

“We’ve seen today that you can’t just add 10bp onto a deal and get a blow out,” he said. “The market doesn’t want new issues with 10bp premiums; the market wants a breather.”

ING Belgium today finishes a roadshow ahead of an expected euro benchmark, and a syndicate official at one of the leads said they would be monitoring market conditions over the next two days, adding that investor feedback had been constructive.

Hypo Tirol has also been on the road, but a syndicate official at one of the mandated banks said any deal would be unlikely to arrive until next week.