Caja Rural Castilla-La Mancha sold a Eu500m eight year cédulas today (Wednesday) that attracted Eu1.95bn of demand, but its reception was tempered by criticism of how the spread was tightened as much as 10bp from IPTs to re-offer, which was deemed symptomatic of the QE-distorted market.

After the mandate was announced yesterday (Tuesday) afternoon, Caja Rural Castilla-La Mancha leads Banco Cooperativo, DZ, HSBC, Natixis and Santander launched the Spaniard’s Eu500m no-grow eight year cédulas hipotecarias with initial price thoughts of the low 60s over mid-swaps, before revising guidance to 57bp, plus or minus 2bp, on the back of books over Eu1.5bn. The spread was then fixed at 53bp, with books over Eu1.95bn.

Although market participants away from the leads acknowledged the high level of oversubscription, the large move from the low 60s to 53bp – outside the interim guidance range – was highlighted.

Andreas Denger, senior portfolio manager and analyst at MEAG, criticised the move, describing it as “brazen” even if demand was so strong.

“This shows exactly what things have come to,” he said. “It looks like issuers can do what they want in terms of pricing because they know that there is enough demand in a squeezed and central bank-supported market.

“Some issuers apparently think they don’t need to care about a good relationship with investors as they know that whenever times are bad there will be external support to help them out of any crisis. That is a shame and I look forward to seeing a reversal.”

Denger, who is also chairman of the ICMA Covered Bond Investor Council, has previously flagged such large moves in pricing as a general concern to be addressed.

A banker at one of the leads said that, with Eu1.95bn of orders relative to a Eu500m no-grow size, the issuer was in “a position of strength”.

Caja Rural Castilla-La Mancha was unable to comment by the time The CBR went to press.

The new issue is the first benchmark covered bond from a peripheral issuer since 23 March, when Italy’s Banca Popolare di Sondrio sold a Eu500m seven year OBG.

Syndicate officials said that peripheral issuers had been monitoring the market since, but had remained on the sidelines because the relative value of their covered bonds versus government bonds had diminished, with peripheral spreads having widened while covered bonds tightened across jurisdictions.

Some bankers also said volumes of peripheral supply may this year be reduced by the launch of new TLTROs by the ECB on 24 June, with some issuers potentially opting for the cheaper funding available through the operations.

The deal is La Mancha’s second benchmark covered bond, following a debut, Eu500m six year issue in September.

The handling of IPTs and the pricing process is one of the issues that will be discussed in a markets panel including Andreas Denger at our conference on 9 June – see here for more details and to register:

http://www.icmagroup.org/events/the-icma-cbic-and-the-covered-bond-report-conference-2016/