Intesa Sanpaolo today (Wednesday) issued the first OBG benchmark since January, a EUR1bn seven year that showed the market to be open to Italians despite recent domestic upheavals, paying the widest spread of the year outside Greece but coming some 110bp inside the sovereign.

The new issue is the first euro benchmark covered bond from Italy since Banco BPM tapped the market on 16 January, and the first benchmark bond from an Italian bank since April. It comes after political upheaval following the country’s general election triggered major volatility across financial markets in late May and early June. Despite a sell-off in Italian government bonds, Italian covered bond spreads remained relatively stable, and compromises enabling the formation of a populist coalition government eased uncertainty around the jurisdiction.

Leads Banca IMI, Crédit Agricole, Credit Suisse, NatWest, Santander and UniCredit launched the seven year obbligazioni bancarie garantite with initial price thoughts of the mid-swaps plus 70bp area this morning.

After around one and a half hours, the leads announced that books had surpassed EUR1.1bn, including EUR70m joint lead manager interest. Guidance was subsequently revised to the 65bp area with books above EUR1.5bn, including EUR80m JLM interest. The spread was then set at 63bp and the size at EUR1bn with books still above EUR1.5bn, including EUR80m JLM interest.

“It is very encouraging to see Italy return and especially encouraging that the deal received such solid demand,” said a syndicate banker away from the leads. “It shows other Italian banks that the market is open and that covereds should probably be the instrument of choice.”

The final spread is the widest offered by a non-Greek euro benchmark covered bond since October 2017, when Portugal’s Caixa Económica Montepio Geral priced a EUR750m five year issue at 65bp over mid-swaps.

Syndicate bankers said the deal paid a new issue premium of around 23bp versus the issuer’s curve, seeing Intesa January 2025s at 36bp, mid, December 2025s at 44bp and February 2026s at 49bp, but some argued that such secondaries are not an accurate guide for primary market clearing levels.

“It arguably came a bit cheaper to the market than one might have expected, but it was important to get a good deal done, and in the end a EUR1.5bn book and a EUR1bn deal size is the kind of result you want to have for the comeback of the Italian market,” said a syndicate banker away from the leads.

Some said that a more relevant comparison is versus BTPs, estimating that the deal came around 112bp inside the Italian sovereign. A syndicate banker away from the leads said this is one of the biggest differentials ever seen between OBGs and BTPs.

“That is probably the tightest you can go in the primary market,” he said. “That is the pain threshold.”

Syndicate bankers expect the deal to perform in the coming days, seeing potential for 5bp-10bp tightening.