Banco Sabadell is set to issue a 10 year euro benchmark cédulas tomorrow (Wednesday), having mandated leads this afternoon. The deal would be only the second benchmark from Spain this year, with peripheral banks having been largely absent from the market on the back of the ECB’s TLTRO II.

The last Spanish benchmark came on 3 January – the first day of market activity this year – when CaixaBank sold a Eu1.5bn 10 year. Supply from the rest of the periphery has also been scarce, with a Eu1.5bn dual-tranche, eight and 12 year offering from Cariparma the only Italian benchmark supply this year.

Banco de Sabadell announced the mandate this (Tuesday) afternoon for its 10 year euro benchmark cédulas hipotecarias to be launched in the near future, subject to market conditions. A syndicate banker at one of leads Banco Sabadell, Barclays, Commerzbank, Crédit Agricole, Lloyds and Natixis said the deal is likely to be launched tomorrow.

Syndicate bankers at the leads saw Sabadell November 2021s quoted at 5bp, mid, pre-announcement, October 2023s at 10bp, and June 2024s at 12bp.

The new issue will be Sabadell’s first benchmark cédulas since October, when it sold a Eu1bn seven year.

The lack of peripheral covered bond supply has been attributed largely to the high take-up of the second series of the ECB’s targeted longer-term refinancing operations (TLTROs). Although the ECB does not release distribution statistics, figures released by certain banks and analysts estimates’ indicate that the take-up was particularly high among peripheral institutions.

All TLTRO II operations have a maturity of four years, and bankers have speculated that any peripheral covered bond issuance this year would therefore come at the longer end.

A lead syndicate banker said that recent trades in other, higher beta markets have shown that sentiment towards peripheral issuers is positive, with demand supported by the relative lack of issuance. Santander was today in the market selling a euro-denominated Additional Tier 1 (AT1), while Italy’s Intesa Sanpaolo attracted Eu2.7bn of orders to a Eu1.5bn five year senior unsecured bond on Monday of last week.

The last, and only, new euro benchmark covered bond issuance this month came on 3 April, when Commonwealth Bank of Australia and Yorkshire Building Society sold Eu750m seven year and Eu500m six year deals, respectively.

Supply then dried up in the run-up to the Easter period, while issuers focussed on higher beta markets amid highly conducive conditions.