Caja Rural de Navarra met a better than expected reception with a EUR500m sustainable cédulas on Wednesday, as RV versus the sovereign enticed domestic investors back in force. Two-thirds went to SRI accounts, a base the issuer is keen to keep on board for the post-QE era.

The new issue was only the third Spanish covered bond of the year and the first since January, with overall peripheral supply having been limited. A recent softening of the euro market has seen core issuers pay increasingly large new issue premiums, with some deals having struggled to be fully subscribed.

However, Miguel García de Eulate, head of treasury and capital markets at CRN, said the issuer decided to press ahead, expecting that the market would be more receptive to a Spanish name.

“With the reduction in QE, the importance of the central bank could have changed after the summer break, and then you never know what market conditions will be like,” he told The CBR. “We took the decision to go out before the summer break, and we were proven right in the sense the market was not that bad, at least for peripheral issuers.

“In fact, we believed that the market would be very different for a Spanish name compared to a core name, because of course the pick-up would be different and because of the huge change that means cédulas now trade above the Spanish sovereign – which has not been the case for years.”

The Spanish sovereign has tightened significantly in recent months, on the back of upgrades to the sovereign and improved sentiment towards the jurisdiction. At a final spread of 24bp over mid-swaps, CRN’s new May 2025 issue was deemed to have offered a pick-up of around 14bp over April 2025 Bonos.

Following a mandate announcement on Tuesday, leads Banco Cooperativo Español, Commerzbank, DZ, HSBC and ING launched the EUR500m no-grow cédulas hipotecarias transaction with guidance of the 30bp over mid-swaps area on Wednesday morning. After just over an hour, the leads announced that books had surpassed EUR1bn.

Guidance was then revised to the 26bp area with books above EUR1.6bn, before the spread was fixed at 24bp, with books closing at EUR1.8bn, pre-reconciliation.

“It was a great outcome,” said García de Eulate. “We were surprised by the demand, not just in the size of the book – which was more than three times oversubscribed – but also by the granularity, with more than 100 accounts involved.

“We were positive on the market, but we did not expect it to be as good as it was.”

García de Eulate highlighted that 28% of the deal was allocated to accounts from southern Europe, mostly Spanish accounts, and that central banks took 21%, of which the CBPP3 order “was just a fraction” – with the ECB having recently reduced its orders and the allocation to the central bank having been cut due to the deal’s substantial oversubscription. He suggested the allocation to the ECB was among the smallest for any CBPP3-eligible deal this year.

García de Eulate said this represented a significant increase in the level of real money domestic demand, noting that for some cédulas in recent years the domestic allocation excluding the central bank was almost zero.

“From a domestic perspective, relative value versus the sovereign is a key consideration,” he said. “I think that is the main reason for this.”

Analysts noted that the bid-to-cover ratio was the highest of any euro benchmark covered bond this year, at 3.6, and said the strong demand for cédulas bodes well for further supply from Spain.

Such demand allowed CRN to print the deal flat to fair value based on its extrapolated curve, although García de Eulate said Spanish secondary spreads were “frozen”, with few transactions taking place at such levels, given the lack of cédulas supply and the influence of CBPP3.

“We had to take an approach which perhaps proved too cautious, starting at 30bp because that was the level indicated by our secondary curve – even if we didn’t agree with those quotes,” he said. “In the end we tightened 6bp during the execution and probably could have tightened more, but we did not want to be too aggressive, as we have a commitment to the covered bond market and want to treat investors fairly.”

Around two-thirds of the deal was allocated to dedicated SRI accounts. García de Eulate said that having access to this additional investor base is important for an issuer like CRN.

“Yesterday, due to the fact that demand was so strong, we could probably have printed a reasonable, non-sustainable deal without these SRI investors,” he said. “But this type of investor is a key priority for us and their long term commitment can be very important when market conditions are different, especially in the context of a post-QE market.

“In our first sustainable covered bond in November 2016, which was not so oversubscribed, it was an important factor in the success of the transaction. Our focus will be to keep these investors on board going forward.”

He added that CRN intends to continue improving its transparency regarding impact reporting and United Nations Sustainable Development Goals (SDG) mapping in order to become a regular ESG issuer.