Bankinter moved to issue a €750m cédulas hipotecarias today (Tuesday) ahead of an expected increase in Spanish supply next year, willing to pay an elevated new issue premium to get its deal away rather than potentially pay a higher absolute spread in 2023, according to lead bankers.

Following a mandate announcement yesterday (Monday) afternoon, leads Bankinter, Deutsche, HSBC, Natixis and Santander opened books this morning with guidance of the mid-swaps plus 40bp area for the euro benchmark-sized May 2028 cédulas hipotecarias, expected ratings Aa1/AA+ (Moody’s/S&P). After nearly two-and-a-half hours, they reported books above €800m, including €100m of joint lead manager interest, and the deal was ultimately priced at 40bp, with demand exceeding €850m.

Syndicate managers at the leads said Bankinter chose to approach the market now, even if conditions are not ideal, particularly for the five-and-a-half year maturity, because of the view that it could nevertheless achieve a better result than next year. Today’s deal is only the fourth benchmark covered bond transaction from Spain this year, taking supply from the country to just €5.75bn, while peripheral issuers are expected to raise more in 2023 as TLTRO funding is phased out – Deutsche Bank analysts, for example, expect supply from Italy and Spain to be more than double this year and above the average of the past five years.

“Cédulas has obviously been quite a rare bird,” said a lead banker, “but there are some expectations that in the intermediate term supply from the region will increase for a variety of reasons. So it was a balanced decision, with the markets not necessarily screaming out for slightly longer duration trades – I think it’s fair to say Westpac’s five year last week didn’t exactly set the world alight – but we felt that there was a positive bias from the scarcity of the region.

“We then needed to design a strategy that would mitigate the negatives to the largest degree possible and deliver the issuer its target size, which was €750m. And we didn’t move the price because moving tighter could have meant ending up with a smaller deal.”

The lack of Spanish supply meant that finding fair value was not straightforward, according to the lead bankers, who circulated bid side rather than mid quotes in light of this. Santander September 2027s issued at the end of August were seen at around plus 22bp and Bankinter February 2028s at plus 25bp.

“You can argue around what you think the delta should be given that the ratings are broadly similar but the size of institution is not,” said the lead banker, “but we saw fair value at something in the context of the high 20s, even if you could argue that it should be higher.”

This implied a new issue premium in the low double-digits, which he suggested was reasonable given that a core Eurozone frequent issuer might have to pay in the mid to high single-digits for such a maturity.

“On the basis of what we’ve seen today, the pricing made sense relative to the issuer’s size objective,” said the lead banker, “so we are pleased with the outcome. I think there’s a reasonable argument that being at the front of the queue rather than the back may have some upside.”

Another lead banker echoed this, saying that while the new issue premium might appear elevated, waiting until next year could involve paying a higher absolute spread.

“There was definitely a pre-funding element to this,” he said.

The banker estimated that perhaps €20bn of the year’s supply has been brought forward and could be deducted from forecasts for 2023. However, although issuance is expected to slow over the coming days and weeks, a banker suggested that further a further euro benchmark could emerge as soon as tomorrow (Wednesday).