Banco Santander Totta issued the first Portuguese benchmark covered bond in 18 months today (Thursday), a Eu1bn seven year benchmark obrigações hipotecárias that attracted over Eu1.25bn of orders, with demand boosted by the lack of supply and the high spread on offer.

Totta’s Portuguese reopener comes after Spain’s Banco Sabadell yesterday (Wednesday) issued a Eu1bn 10 year cédulas that bankers saw as reviving peripheral issuance, being the first peripheral benchmark since mid-March and only the third of the year.

Swiftly following Sabadell’s deal, Totta announced a mandate yesterday afternoon for a seven to 10 year OH. Leads Deutsche Bank, Santander, Société Générale and UniCredit launched a seven year issue this morning with initial price thoughts of the high 60s over mid-swaps. Guidance was then revised to the 65bp area, before the spread was fixed at 62bp and the size at Eu1bn on the back of over Eu1.25bn of orders.

“It’s a very positive result,” said a syndicate banker away from the leads. “It’s been a significant time since Portuguese issuers came to the market and it’s great to see this go smoothly.

“Besides the lack of supply, I think the overall spread context was also very helpful here. Obviously some people wouldn’t normally have played given the pricing significantly through the Portuguese sovereign curve, but because of the rarity value of the deal and the tight spreads on offer elsewhere in the covered bond market, it seems investors were keen to take another look.”

The deal is the first benchmark Portuguese covered bond since October 2015, when Totta sold a Eu750m five year OH.

Bankers said it was difficult to calculate fair value for the new issue given a lack of comparables. Totta October 2020s, the issuer’s longest dated outstanding, were seen quoted in the low 20s, bid.

The January 2020s of fellow Portuguese issuer Caixa Geral de Depósitos were seen at around 37bp, bid, while its January 2022s were quoted at around 65bp, bid. Taking into account the credit differential between the two issuers, bankers said Totta’s deal offered a new issue premium of the mid-single digits.

“It’s not very scientific, but it does optically look like a pretty slim concession,” said a banker away from the leads. “They’ve also priced through Caixa’s shorter dated deal, which is clearly impressive in itself.”

Bankers said the Portuguese issue also looked attractive versus that of Sabadell’s 10 year yesterday, which was priced at 33bp over mid-swaps.

“The price discovery was always likely to be tough, but I think they’ve put this fairly back of the Portuguese comparables as well as the southern European alternatives,” said a banker.