Bail-out has mixed signals for Cédulas

The proposed bail-out of Spanish banks should be good for Cédulas holders, as the draft memo between the EU and Spain specifies the loss absorbing buffer of a bank’s liability structure. However, the impaired assets that are set to be segregated are likely to shrink Cédulas overcollateralisation (OC) and exacerbate a trend that has accelerated recently due to the surge in retained issuance.