A Eu1bn 10 year OH for Banco Santander Totta was hailed a blow-out today (Tuesday) having attracted some Eu3.25bn of orders, with demand supported by a rally in Portuguese government bonds and a lack of peripheral supply. PKO is set to issue a seven year tomorrow.

S&P upgraded Portugal from BB+ to BBB- on Friday, raising it out of junk territory for the first time since 2012. The upgrade prompted the biggest rally in Portuguese government bonds since the Eurozone debt crisis, with the yield of its 10 year tightening 36bp to below 2.5% yesterday, and the sovereign continued to tighten this morning.

Following a mandate announcement yesterday (Monday), Totta’s new obrigações hipotecárias (OH) issue was launched by leads Barclays, Credit Suisse, Natixis, Santander and SG with guidance of the high 50s over mid-swaps this morning. The leads later announced that books had exceeded Eu1.75bn, before revising guidance to the 50bp area, plus or minus 2bp will price within range. The spread was then set at 48bp and the size at Eu1bn on the back of Eu3.25bn of orders.

“It’s a blow-out book and a very impressive price,” said a syndicate banker away from the leads. “Sentiment around the jurisdiction is clearly high after the sovereign upgrade, and given that it is already very much an issuer’s market, you probably could not have picked a better time to do a new Portuguese trade.”

Bankers said demand for the deal was also supported by the scarcity of peripheral and Portuguese supply in particular. Totta reopened the Portuguese covered bond market in April with a Eu1bn seven year that was the first benchmark obrigações hipotecárias since October 2015. Only one other benchmark has been issued out of the country since, a Eu1bn five year issue for Banco Commercial Português in May.

Bankers said it was difficult to calculate fair value for the new issue, as it extended the covered bond curve of Portugal. Totta’s recent April 2024s, its longest dated outstanding, were seen trading at around 31bp, mid, today, and some estimated fair value to be in the mid-40s, based on the spread differential between the 2024 and 2026 paper of Totta’s Spanish parent, Santander.

“It is a very slim concession for a Portuguese trade, especially a 10 year,” said a banker away from the leads.

Totta announced on 5 September that its board had approved the acquisition and integration of Banco Popular Portugal. Santander acquired Banco Popular Español in June, after the latter was determined to be failing or likely to fail by the ECB and entered into resolution.

On the back of Totta’s announcement, Moody’s affirmed Totta’s ratings and changed its outlook on the bank from positive to stable yesterday evening. The rating agency believes Totta’s credit profile will remain resilient after the acquisition despite Banco Popular Portugal’s weaker fundamentals, but said the integration will limit the upside pressure to Totta’s ratings that it had anticipated prior to the acquisition.

Deutsche Pfandbriefbank today tapped by Eu100m a Eu500m August 2021 mortgage Pfandbrief, via leads Commerzbank, DekaBank, LBBW and UniCredit. The deal was priced at a spread of 14bp through mid-swaps. The original issue was priced at minus 6bp with a coupon of 0.05% in February.

PKO Bank Hipoteczny announced a mandate today for a seven year euro benchmark covered bond, following the completion of a European roadshow yesterday (Monday). A syndicate banker at one of leads HSBC, PKO Bank Polski, LBBW and UBS said the deal could be launched tomorrow.

Syndicate bankers at the leads saw PKO Bank Hipoteczny June 2022s at 21bp, mid, and January 2023s at 23bp.