BBVA is selling its first benchmark covered bond since March 2011 today (Monday) and the first from Spain to come through the sovereign’s curve, in a warmly received five year deal that bankers said was a sensible move by the issuer.

BBVA’s last benchmark covered bond market was a Eu2bn three year sold at 155bp over mid-swaps on 21 March last year.

Leads Barclays, BBVA, Citi, Deutsche, ING Bank and Natixis gathered more than Eu2.3bn of orders for the new issue and will price the cédulas at 260bp over mid-swaps, in line with guidance. The size of the deal was yet to be confirmed by the time of publication.

A lead syndicate banker said that there several reasons for launching the transaction.

“There was not a lot in the pipeline, BBVA hadn’t been out since March 2011, there was a huge appetite, and Intesa’s deal last week confirmed it was possible to go for something through the sovereign,” he said, “so there was no reason not to go.”

Italy’s Intesa Sanpaolo on Thursday priced a Eu1.25bn 10 year benchmark at 200bp over mid-swaps, 106bp through the sovereign, according to the issuer. Its national peer, UniCredit, in August became the first covered bond issuer to price a benchmark clearly through government bonds.

Until today Spanish issuers had not achieved this feat, but syndicate bankers away from the leads saw the Banco Bilbao Vizcaya Argentaria new issue coming some 100bp tighter than Bonos, with one putting a July 2017 government bond at 365bp over mid.

A syndicate banker away from the leads said that BBVA may have decided to wait until now as the pricing for covered bonds has improved a lot in the past couple of months.

“The market is in very good shape,” he said. “In targeting the covered bonds investors’ universe, the deal gives a slight movement away from the senior unsecured investor base.

“For long dated paper, it is sensible to do that in the cheapest format, which would be a covered bond rather than a senior.”

He cited Intesa’s 10 year deal as a comparable, noting that it offered a similar rating differential.

The deal was flat to secondaries, and to Santander’s cédulas, “which is fair but not a giveaway,” he said.

“I think the relative value arguments are on the aggressive side,” he said, “but there is obviously not much in the way of the cédulas supply for a big Spanish name, so I still expect it to go pretty well.”

Another syndicate official said that cédulas used to be “a giveaway” compared with Spanish senior unsecured benchmarks, but that there was now a “decent basis” between covered bonds and senior unsecured, and covered bonds and CDS.

“The issuer can be very happy,” he said. “It takes the frothiness out of this, because hedge funds won’t be piling into this.”

He said there was a fairly minimal new issue premium on offer on BBVA’s deal, which was coming after a considerable underperformance by the sovereign and outperformance by covered bonds, and that the timing of the transaction was good.

“BBVA is doing the right thing by taking money off the table,” he said, “before uncertainty of a significant downhill trajectory.”

He cited the risk of the Spanish sovereign being downgrade to sub-investment grade.