(Adds pricing details)
MADRID Nov 26 Spain's second-biggest bank BBVA issued a 2 billion euro ($2.6 billion) covered bond on Monday at a lower yield than five year Spanish government bonds, Thomson Reuters news and market analysis service IFR reported.
The bond, which carried a 3.5 percent coupon and matures in December 2017, was priced at 260 basis points over mid-swaps, according to IFR. It was BBVA's first such deal of the year.
At around 1200 GMT the bond had already received 2.3 billion euros in bids. Demand was helped by a recent lack of covered bond deals, bankers told IFR.
By comparison, Spanish five-year government bonds were trading at close to 360 basis points over mid-swaps earlier in the day.
The bank mandated Barclays, BBVA, Citi, Deutsche Bank, ING and Natixis for the issue.
($1 = 0.7717 euros) (Reporting by Clare Kane, Tomas Cobos and Sarah White; Editing by Helen Massy-Beresford and Mark Potter)