Banco BPI sold its first benchmark covered bond in over four years today (Tuesday), a €500m five year issue of obrigações cobertas that attracted over €700m of orders, with bankers at and away from the leads suggesting the outcome reflected prevailing market conditions.

Today’s Portuguese deal is only the second euro benchmark covered bond from the country since it implemented the EU covered bond directive, following a €750m five year from Banco Santander Totta in April. Prior to that, the jurisdiction had seen no supply since November 2019.

Following a mandate announcement yesterday (Monday), leads CaixaBank, Commerzbank, Crédit Agricole, SG and UniCredit this morning opened books with initial guidance of the mid-swaps plus 60bp area for a euro benchmark-sized July 2028 issue, expected ratings Aa2/AA (low). An initial update put orders above €625m excluding joint lead manager interest, and the size was set at €500m and the spread at 58bp on the back of a book of around €700m, with the final book being above €700m.

Although the “euro benchmark” size flagged in the initial announcement had held out the prospect of a bigger deal, and the pricing move was a historically modest 2bp, a lead banker said the result could be considered a success.

“Clearly we are in a market that is repricing,” he said, “so being able to get a book going and show some momentum is the most important thing. Having the ‘benchmark’ wording wasn’t necessarily the easiest thing to play with, but after a little bit over an hour and a half we were able to get out the update and show the trade was working, which is what investors want to see. We were then able to tighten 2bp and the book held together extremely well at around €700m.

“At the end of the day, it’s a good trade for them.”

A syndicate banker away from the leads agreed – given the current state of the primary market, where Bausparkasse Schwäbisch Hall pulled a €500m 10 year deal last week and most other new issues were lacklustre.

“When you look at where the market is, as of now, it feels like it’s really only OBGs that are working very well,” he said, “and that’s because the market has been preparing for that supply for more than a year.”

Yesterday, Intesa Sanpaolo became the fourth Italian bank to sell a benchmark covered bond since the OBG market’s reopening three weeks ago, issuing a €1.25bn five year trade on the back of some €2bn of orders at mid-swaps plus 50bp, 3bp inside guidance and with a new issue premium put at anything from 8bp to 12bp.

Banco BPI’s new issue also involved a degree of price discovery. Santander Totta’s five year issued in April at 43bp was quoted at around 41bp-42bp, according to the lead banker. He suggested a new Santander Totta five year would have to offer at least 50bp, incorporating a new issue premium, and that Banco BPI at 58bp made sense in that context in today’s market.

“We also had a lot of really good quality accounts looking at the trade because they like the quality of the credit at this spread,” said the lead banker.

“One positive thing to come out of the current market is that you have fewer opportunistic accounts but can have more precise direct interactions with the reason money and bank treasury accounts that can be sizeable in this kind of transaction,” he added, “so you know that from a quality perspective, the book is very good, even if the oversubscription might not be so big.”

Euro benchmark covered bond supply is expected to remain subdued in the short term, with syndicate bankers generally not expecting tight names, such as Pfandbriefe, but possibly semi-core or further higher beta issuance.