Deutsche Bank SAE attracted over Eu2bn of orders to a Eu1bn five year cédulas hipotecarias today (Wednesday), defying expectations that the market was shutting down early, although bankers cited a 15bp premium as a cornerstone of the deal’s success, which was supported by a rally in Bonos.

The new issue is the first euro benchmark covered bond since 23 November, with issuance drying up as the market focussed on Italy’s constitutional referendum on Sunday.

According to a syndicate banker at one of Deutsche’s leads – BBVA, Deutsche, LBBW, NatWest Markets (RBS) and UniCredit – the issuer had been planning to print a deal before year-end and had been monitoring the market last week, but was delayed while documentation was still being prepared.

“Due to the delays, we were pushed back and the end of last week was the earliest we could have done the deal,” she said. “Obviously we decided against entering the market pre-referendum, and with yesterday a bank holiday in Spain, today was the first available window.

“Given the positive market backdrop this morning and a quite significant rally – especially in Spanish govvies – we decided to pull the trigger. It turned out to be the right decision.”

The five year cédulas was launched with guidance of the 60bp over mid-swaps area this morning, before guidance was revised to the 58bp area. The price was then fixed at 56bp and the size at Eu1bn on the back of books in excess of Eu1.6bn. The book closed at over Eu2bn with over 105 accounts.

“It was a great outcome, and we were super-positively surprised by the investor demand,” said the lead syndicate banker. “It helped that we’ve seen some repricing in the peripheral segment, which were super tight, so Spanish spreads are now more attractive for investors.

“However, they are still tighter than at the beginning of the year, so from that perspective it ticked everyone’s boxes.”

Bankers away from the deal said it had gone better than they first expected.

“Eu2bn of demand, in this market and at this time of the year, is a great result,” said one. “It’s arguably the strongest deal for some weeks.”

Before the Italian referendum, many market participants had suggested that a “no” vote would cause renewed volatility, affecting peripheral markets in particular, and potentially close the market for euro issuance this year.

However, markets were calm after the widely expected result on Monday morning, and in covered bonds only the spreads of troubled Italian issuer Banca MPS widened. Spanish spreads tightened around 2bp on Monday and have since been stable, having widened substantially over the previous weeks in the run-up to the referendum.

“Quite a few people were saying we were done for the year,” said a syndicate banker away from the new issue. “Now that a Spanish name has come along and picked up Eu2bn of orders, we might need to rethink that.”

A last minute surge in issuance is deemed unlikely, however, with bankers citing low liquidity at the year-end and an ECB meeting tomorrow (Thursday) as still presenting substantial obstacles. They also said that any issuer would have to pay up to enter the market.

Bankers at and away from Deutsche’s deal said the new issue offered a premium of around 15bp, seeing the issuer’s November 2020s at 37bp, mid, and January 2023s at 43bp.

“It was executed well and Eu2bn plus means a very decent book, but this is cheap,” said a banker away from the leads. “The message here is that if you really want to get out the door before Christmas then you can still find enough demand if you pay up to a considerable extent.

“There is still spare cash in this market, but I think to motivate investors to put it to work with your trade, you need to be more generous than you might have been a few weeks ago.”

The lead syndicate banker said, however, that the 15bp premium is in line with the premiums offered by deals from BBVA and Caja Rural de Navarra on 14 and 16 November, respectively.

“And also given the time of the year, you have to pay up a bit more,” she added.

Bankers said the deal offered a pick up of around 20bp versus the sovereign, noting that five year Bonos were today at around 34bp, having been at highs of 55bp last week.

“This was very welcome,” said the lead syndicate official. “It usually never goes your way.”

The deal is Deutsche’s second benchmark cédulas of the year, following a Eu500m seven year in January, and third overall from the German bank’s Spanish unit.