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Banco de Sabadell has become the latest Spanish bank to attract significant demand for its riskiest debt, as investors continue to pile into the country’s financial sector.

The Catalan bank, which owns TSB, is in the market today with a €750m additional tier 1 bond, which had already attracted orders of close to €5bn by mid-morning.

The bond is expected to price later today at a coupon of around 6.5 per cent. Additional tier 1 bonds are designed to expose debt investors to losses at times of distress, effectively shoring up the bank’s balance sheet.

The sale comes as market appetite for Spanish risk heats up, against a backdrop of improved economic data and attractive yields on financial debt compared to other fixed income asset classes.

Spanish banks have already sold more debt so far this year than they did in the entirety of 2016, according to Dealogic data.

In March, Bankia brought in nearly €5bn of demand for a €500m subordinated bond. Last month, Santander sold an AT1 bond which has since gained over 5 per cent in value.

AT1 bonds sold off viciously early last year but have rallied strongly since. The niche debt provides yields far above equivalently rated corporate high yield bonds, in part because of its absence from major indices.

Copyright The Financial Times Limited 2018. All rights reserved.

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