Bankinter was taken by surprise by the strength of demand for a Eu500m cédulas hipotecarias it launched yesterday (Thursday), a funding official at the Spanish bank told The Covered Bond Report, and after weeks of closely monitoring the market felt it chose the right time.

The transaction, a three year that was capped at Eu500m from the outset, is Bankinter’s second covered bond benchmark this year, with the issuer having been on the look-out for an issuance opportunity since September, according to Covadonga Perez, head of the funding department at Bankinter.

“We have been quite patient, looking for the right moment to do a deal,” she said. “A few weeks ago we had an opportunity to issue in the 400bp over range, but with this transaction we feel that we chose the right time.”

The new issue is the first covered bond benchmark from Spain since the middle of September, when Banco Español de Crédito (Banesto) and Banco Sabadell were among seven issuers to tap the euro market in one week.

An improvement in market sentiment on Wednesday in response to Moody’s unexpectedly affirming Spain’s rating at Baa3 presented an issuance opportunity that the issuer was keen to take advantage of, however, with the release of third quarter results yesterday (Thursday) morning making such a move possible.

And although the issuer did not expect an auction of Spanish government bonds yesterday morning to be market-moving, said Perez, it only opened the order books on its deal after this had happened, and gone well.

“We had been looking closely at the market every day since September, but in the end we made a very quick decision,” she said. “The market was slightly weaker than on Wednesday but the auction went well.”

Leads Bankinter, JP Morgan, Natixis and Nomura set initial price thoughts at the 355bp over mid-swaps area before setting guidance 10bp tighter, with some Eu3.2bn of orders placed during one hour of bookbuilding, allowing pricing at 335bp over.

“We were very surprised by the strong demand,” said Perez. “We thought we would be able to do a deal but did not expect six times oversubscription.”

She said that the tightening of the spread reflected the extent of demand rather than an initially cautions approach to setting the level.

“We were able to tighten the level a lot because the response was very good,” she said. “There was very little price sensitivity.”

Secondary market demand for standalone and multi-cédulas was unabated this week, according to Barclays analysts, who said that shorter dated multi-cédulas tightened by 60bp-70bp on the week, and that second tier standalone cédulas also performed strongly this week, with the spread gap between tier one and tier two names continuing to narrow.

A syndicate official on the Bankinter deal said that the leads used as comparables a Bankinter March 2017 issue that was trading at 360bp over asset swaps bid before the deal was launched, CaixaBank April 2016s trading at 345bp over bid, and Banesto June 2016s at 325bp over.

At 335bp over mid-swaps Bankinter’s cédulas offered a pick-up of around 60bp over Bonos, he said.

A covered bond analyst suggested that Bankinter’s covered bonds were cheap relative to senior CDS quoted at around 350bp.

Domestic investors accounted for 22% of allocations, with the UK taking 30%, Germany 18%, France 12%, Nordics 4%, the Benelux 3%, Italy 3%, and others 8%. Asset managers were allocated 65%, banks 26%, insurance companies 7%, and central banks 2%.