Caja Rural de Navarra (CRN) could launch the first green cédulas and first Spanish euro benchmark since September later this week, a €500m no-grow seven year, as the market comes to terms with the ECB’s hawkish tilt, while Clydesdale Bank is planning a five year sterling benchmark.

Banco Cooperativo, Crédit Agricole, DZ, Natixis and UniCredit have been mandated by CRN as leads for the inaugural, €500m seven year green cédulas hipotecarias and are expected to launch the Aa1 rated deal after scheduled investor calls today and Tuesday.

The new issue will be the first euro benchmark from Spain since September, when Eurocaja Rural sold a €700m 10 year inaugural sustainable covered bond that was the only benchmark cédulas of the year.

“Last year was pretty poor in terms of Spanish supply,” said a banker at one of CRN’s leads, “and it’s good to have them back. It’s not the most regular name, but it’s definitely a good quality name, and we expect people to welcome a Spanish deal.”

The mandate was announced this morning in the wake of surprisingly hawkish comments from ECB president Christine Lagarde on Thursday afternoon that sparked a sharp back-up in yields and put pressure on spreads. However, the lead banker said covered bonds were stable and the changed outlook should not prove an obstacle to launching CRN.

“Rates-wise, things still seem to be ticking higher, but spread-wise, not a lot has changed,” he said. “Apparently people are not willing to sell, so traders are not inclined to quote wider.

“And, don’t forget, the ECB is still bidding for 40% of each and every benchmark.”

Another lead banker said the deal should prove an interesting test for the market post-ECB.

“There is a need for pragmatism,” he said. “There was an element of marketing that needed to be done anyway given that the issuer has not been in the market for so long and given that it is an updated framework, so the plan is to get that sorted and then, based on feedback from investors, to have a clearer picture of what can be done and when.

“We are not necessarily in a rush to be in the market.”

CRN last issued a benchmark covered bond in April 2018, a €500m seven year sustainable issue, while other Spaniards have also issued cédulas hipotecarias in social and sustainable format.

CRN is now issuing the first green Spanish covered bond under its broad sustainability bond framework, which was established in 2016 and updated in December alongside the accompanying second party opinion (SPO) from Sustainalytics.

The most recent update aligns the use of proceeds with the EU Taxonomy technical screening criteria and the draft EU Green Bond Standard, while the issuer is seeking to comply with the do-no-significant-harm criteria of the Taxonomy on a best efforts basis. Sustainalytics has confirmed alignment with the Taxonomy and Green Bond Principles.

The use-of-proceeds category of CRN’s green bond within its sustainability bond framework is energy efficiency and specifically energy efficient buildings. The issuer highlights in its investor presentation that it is committed to CO2 reduction, is a member of the Energy Efficient Mortgage Label, and has created a dedicated department to promote the renewal of buildings to become a key player in the EU project “A Renovation Wave for Europe”.

CRN’s benchmark is set to be the first of 2022 in euros in an ESG format – the only such covered bond issuance so far this year was in sterling, a £500m five year social covered bond from Yorkshire Building Society on 11 January.

HSBC analysts said that the lack of issuance – after a strong 2021 – should not be overstated at such an early stage in the year, but was nevertheless puzzling. They said that were this trend to continue, it could point to a shift in investor behaviour.

“Recent feedback from several covered bond issuers indicates that many of them need more time to build up sufficient eligible mortgage collateral before they can issue another ESG covered bond benchmark,” they said.

“Moreover, over the past few years, the greenium in the covered bond market has remained tiny, with green covered bonds often priced only 1bp-2bp or even less inside of their conventional peers. On the other hand, the yield differential between green and conventional unsecured bank bonds has been considerably higher, shifting issuers’ preference towards senior and subordinated unsecured issuance.”

Clydesdale Bank is meanwhile set to issue a five year Sonia-linked issue tomorrow (Tuesday) that will be the first benchmark covered bond under the name since 2012 and the first since the merger with Virgin Money, which last tapped the market in September 2019, with a €600m seven year deal. Barclays, HSBC, Lloyds and NatWest are leads.

The last UK covered bond was Yorkshire Building Society’s social bond.