Sabadell sold the tightest benchmark cédulas in over a year today (Thursday), printing a Eu1bn seven year that, at 10bp over mid-swaps, also came well inside a similar deal from Ibercaja on Monday, and bankers said the strong demand for the new issue is an encouraging signal for peripheral names.

Sabadell’s deal comes three days after Ibercaja sold a Eu500m seven year cédulas at 22bp over mid-swaps. That was the first benchmark covered bond from Spain in over four months, but bankers said the new issue for Sabadell, a more established covered bond issuer, was a better barometer of demand for Spanish paper.

“It’s a very healthy sign to see another peripheral deal go well,” said a banker away from the new issue. “While Ibercaja came wider, being a rare name, this deal in particular shows that higher tier Spanish issuers can access the market at the kind of levels we have been seeing recently.”

Leads Banco Sabadell, Commerzbank, Deutsche, Goldman Sachs and Société Générale launched the seven year cédulas with guidance of the 15bp over mid-swaps area, before revising guidance to the 12bp area on the back of Eu1.5bn of orders. The spread was then fixed at 10bp and the size at Eu1bn.

The deal is the tightest benchmark covered bond from Spain since September 2015, when Santander priced a Eu1bn September 2022 issue at 9bp over mid-swaps.

Bankers said the deal offered a new issue premium of around 4bp, seeing Sabadell June 2024s at 6bp, mid.

“It is fairly generous,” said a syndicate banker away from the leads. “But if you compare it to historical levels, this is tight for a Spanish name.”

Another banker agreed, suggesting it was appropriate that Sabadell had priced its deal with a sizeable differential from a seven year Bank of Montreal issue that was today priced at 2bp (see separate article).

“It’s a sensible approach,” he said. “I think what people will be looking at today is the absolute levels.

“You’ve got a Canadian seven year pricing at 2bp and this Spanish seven year pricing at 10bp. I think that is more relevant than the new issue premium in this case.

Ibercaja’s Eu500m seven year new issue was seen trading at 19bp, mid, pre-announcement. Bankers attributed the tighter spread of Sabadell’s larger deal to its higher covered bond rating, with Sabadell’s covered bonds rated Aa2 by Moody’s and AA by DBRS and Ibercaja’s rated A2 by Moody’s and A+ by S&P.