Bankinter printed a Eu750m five year covered bond on the back of a Eu800m book today (Thursday), offering a premium of up to 20bp and pricing in the middle of IPTs, with some bankers describing the outcome as a strong result in challenging conditions but others questioning the issue’s timing.

The deal is only the second euro benchmark this week, after Swedish Covered Bond Corporation sold a Eu750m five year on Monday.

Leads Bankinter, Goldman Sachs, Nomura, Santander and Société Générale priced the Eu750m five year issue at 40bp over mid-swaps, building a final order book of over Eu800m excluding lead manager (JLM) interest. The deal was launched with initial price thoughts of the 40bp area, with the leads maintaining that level for guidance after gathering IOIs of over Eu700m.

“This trade is a testament to Bankinter, who are in a way reopening the market,” said a syndicate official at one of the leads. “It was especially good to get the Eu750m size done.

“An oversubscribed Eu750m deal from the periphery, with no JLM interest, is exactly what the market needs.”

However, syndicate officials away from the deal were divided as to whether the result represented a success for Bankinter.

“It’s a tough market backdrop,” said one, “and, given that, this looks like a strong outcome.”

But others questioned the decision to come to the market today.

“It hit me by surprise,” said one. “I am not sure the market has had enough of a break to digest new supply and I can’t see why they did not wait until next week, when they might have enjoyed more demand.”

Syndicate officials away from the leads noted the deal had followed a similar approach to pricing to that adopted in recent peripheral deals, such as a Banco Popular Español Eu750m six year on Wednesday of last week. Banco Popular’s issue, which was priced at 45bp, was seen as offering a new issue premium of around 15bp-20bp.

They said today’s new issue offered a premium of around 20bp based on Bankinter’s secondary curve, seeing its August 2022 paper quoted at around the low 20s, bid, and its March 2017s and February 2018s at around the high teens.

“That is obviously a significant amount,” said one syndicate official away from the leads, “but for a peripheral European issuer at the moment it seems to be relatively standard.”

The lead syndicate official, however, put fair value in the low 20s, saying there was a clear disconnect between primary and secondary levels.

“It is rather about where people care to get involved in the transaction,” he said. “We feel we had good support from the outset.”

“It will be very interesting to see how this trades on the secondary.”

Syndicate officials said Spanish covered bond spreads had drifted wider over the last week in line with the rest of the market, but had stabilised yesterday (Wednesday) while spreads of some lower beta names, such as German and Nordic issuers, had tightened slightly.

The lead syndicate official noted Banco Popular Español’s six year issue was, for example, quoted at around 55bp-56bp.

“That deal’s been under a bit of pressure,” he said, “but this Bankinter has got a good response from a lot of people and it feels encouraging.”

A syndicate official away from the leads said sentiment regarding Spain had been boosted at the weekend by the results of elections in Catalonia.

“That removed a bit of uncertainty,” he said. “We have also seen a reasonable Spanish bond auction today in threes, fives and 10s, with relatively good demand especially at the long end, so there are good feelings around the jurisdiction.”

The new issue is Bankinter’s third benchmark covered bond of the year, following two Eu1bn issues, the first a 10 year sold in January and the second a seven year on 23 July.

Syndicate officials expressed hope for a slowdown in primary activity, which could result in the Eurosystem focusing on secondary buying under CBPP3 and help the market return to normal, after covered bond spreads were seen as stabilising yesterday following substantial widening over the last two weeks.

“Any problems we have had in this quarter won’t disappear right away just because we flip a calendar page,” said one. “Lacklustre buying will continue until the primary market has had a bit of a break and investors have been left alone, after which things will – hopefully – improve.”

With US non-farm payrolls to be announced tomorrow (Friday), syndicate officials said there will be no further issuance this week. However, they said more will likely arrive next week, with issuers still in the pipeline and more – Nordic issuers in particular – said to be monitoring market conditions ahead of potential deals.

“Depending on market sentiment at the week’s open, we will see more projects,” said one. “Issuers will have to take their cues from the secondary performance of Bankinter’s new issue and the non-farm payrolls on Friday – and they will have to pay up – but there is certainly the potential for further issuance next week.”