Spain

Banco Sabadell was right to approach its possible 10 year covered bond with caution. But if it had been serious about the longer tranche, it would have shown the market a representative spread.

Banco Sabadell ended a month long drought of periphery issuance on Friday by only just managing to print a €750m five year covered bond. A mooted 10 year never appeared.

Banco Sabadell mandated leads for a five year Cédulas Hipotecarias on Thursday and said it is exploring the possibility of a 10 year. Ambiguity over whether a long dated tranche will emerge or not reflects the view that indicative pricing on the longer bond looks ambitious.

DG Hyp printed the second German Pfandbrief of this week on Thursday, proving the market is very much open to German borrowers. But the success of the deal does not guarantee an easy reception for Banco de Sabadell, the first peripheral name to mandate since Bank of Ireland on April 29.

The Spanish government has published a new securitization law which is expected to allow issuers to structure covered bonds backed by a segregated pool. The move could spur issuers to consider conditional pass through structures backed by a broad range of assets, said analysts at Moody’s and Société Générale.

The spread between the weakest and strongest covered bonds is tighter than at any point in the last five years, thanks to the European Central Bank’s backstop bid. But just because the ECB is willing to buy anything and everything that qualifies as a covered bond, that doesn’t mean investors should.

At the end of April Standard & Poor’s will roll outs its new multi Cédulas (MC) rating methodology. It expects 40% of deals it rates to be downgraded two to three notches and 40% to be upgraded about two notches. At the same time it will implement its European commercial real estate (CRE) rating criteria, which will result in 10% of covered bonds with commercial real estate in the pool being downgraded by one notch and no upgrades.

Aktia Bank Finland priced its Aaa-rated €500m no-grow deal on Tuesday, in what can only be described as a straightforward well prepared transparent process. In contrast, Banco Popular Espanol came to market with a less prepared €1bn, Baa1-rated offering in an over supplied part of the curve, just as peripheral sovereign volatility spiked higher. Nevertheless, with an attractive concession, the Spanish issuer got a fair result.

Nationwide and Caixabank launched long dated deals on Wednesday. Even though both trades were fairly priced, this part of the curve was heavily supplied. The deals also suffered from a widespread market malaise, partly stemming from renewed concerns over Greece. But Nationwide's was undoubtedly the stronger deal, being more appropriately sized and priced. It was also placed with high quality private investors, in stark contrast to the Spanish deal.

Fitch and Moody’s have interpreted Spain’s new bankruptcy regime differently, though according to DZ Bank covered bond research analysts, both agencies see elevated credit risk in Spanish cover pools relative to international standards.

After a three year absence, Bankia returned to the covered bond market in style on Wednesday. With a coupon that’s likely to pay a rare 1%, the issuer was able to attract a high quality, well oversubscribed, diversified book and paid virtually no new issue premium.

Caja Rural de Navarra issued a €500m seven year mortgage backed Cédulas on Tuesday at almost half the spread level achieved by Intesa San Paolo in January. The strong outcome underscored the impression that spread tightening momentum for smaller peripheral covered bond issuers has continued undiminished.