Demand of over EUR950m for a delayed EUR500m Cajamar cédulas today (Thursday) is a positive sign for Spanish issuers after recent volatility and uncertainty, said bankers, and while the spread was the widest of the year with the exception of Greece, the new issue premium was deemed modest.

Cajamar Caja Rural announced a mandate on Tuesday for a five year euro benchmark cédulas hipotecarias, but the issuer and its leads decided not launch the deal yesterday (Wednesday), as had been expected, because of volatility in southern European government bonds.

This morning leads BBVA, Crédit Agricole, Raiffeisen Bank International, Santander and UBS went ahead with the deal, going out with guidance of the mid-swaps plus 58bp area. Around 50 minutes after launch, the leads announced books had surpassed EUR750m.

Guidance was subsequently revised to the 55bp area with books over EUR850m, before the spread was set at 54bp and the size at EUR500m with books over EUR950m.

Syndicate bankers said the size of the book, and the deal having found sufficient traction for the spread to be tightened 4bp were good signs for Spanish issuers after recent volatility in peripheral debt.

“Covered bonds are made for difficult markets, but after they postponed yesterday it is encouraging to see them not just get the deal done but get solid demand,” said a syndicate banker away from the leads.

The deal is the first Spanish covered bond to emerge since the removal of Spanish prime minister Mariano Rajoy from office on Friday, with new prime minister Pedro Sanchez currently forming a new government. Amid political uncertainty, the spreads of Spanish covered bonds widened substantially in May – by around 14bp on average, the largest move in any market segment outside Italy.

The final spread is the widest offered by a non-Greek euro benchmark covered bond since October 2017.

It was seen as incorporating a new issue premium of 6bp-8bp, with bankers citing Cajamar October 2020s at 35bp, mid, and January 2022s – the issuer’s longest outstanding benchmark – at 42bp.

“They paid up more than the core names that have been in the market this week – which you probably have to do as a returning peripheral issuer – but not by a lot,” said a syndicate banker at one of the leads.

Syndicate bankers said demand for the deal would have been supported by the recent lack of supply from Spain and the scarcity of the issuer. The new issue is only the fourth benchmark covered bond from Spain this year and the first since 25 April, when Caja Rural de Navarra issued a EUR500m seven year sustainable cédulas. It is Cajamar’s first benchmark covered bond since October 2015, when it issued a EUR750m five year.

DG Hyp announced a mandate this afternoon for a EUR500m nine year no-grow mortgage Pfandbrief, via leads BayernLB, Deutsche Bank, DZ Bank, Erste Group and Natixis. A syndicate banker at one of the leads said the deal will be launched tomorrow (Friday), subject to market conditions.

Syndicate bankers said fair value for the new issue will be around minus 12bp-11bp, seeing DG Hyp September 2026s at minus 13bp, mid, and 2026-2027 paper from other German cooperative issuers at minus 13bp-12bp.

The deal is expected to be DG Hyp’s last euro benchmark before it is merged with WL Bank – a fellow member of the DZ group – to form a new Pfandbrief issuer, named DZ Hyp. The merger will take place on 1 July and the closing date will be effective retroactively from 1 January 2018.

The lead syndicate banker said the story of the merger was well understood and “not an important topic” for investors.