Spain

Santander raised €7.5bn of equity capital in a block trade on Thursday January 8, the biggest ever outside the US, to put its core equity tier one ratio up to 10%. The deal was priced at the low end of the discount range and led to a very steep fall in Santander's share price the day after – yet won some admiration from rival banks.

The once beleaguered multi-Cédulas sector may well be a safer asset class to invest in because, over the last year, overcollateralization (OC) ratios have increased, said Fitch.

A newly proposed legal framework for the Spanish Cédulas market could lead to less overcollateralization, which would in turn lead to downgrades of at least one notch, said Fitch on Thursday. But the introduction of a 12 month liquidity facility could lower the mismatch risk between assets and liabilities leading to a one notch rating improvement, the agency added.

Santander returned to the covered bond market on Wednesday after a 21 month absence with a dual tranche offering that included a 20 year tranche, a duration that has not been seen from a Spanish issuer for at least five years, and which responds to unsated demand from insurance firms.

Australia and New Zealand Bank returned to the covered bond market on Wednesday to issue the tightest ever deal issued by an Australian bank in euros. The five year transaction nevertheless offered a decent pick-up to where covered bonds issued by eurozone banks have been priced and the issuer’s curve.

The European Central Bank's covered bond purchase programme (CBPP3) turned relative value upside down this week, with a French deal pricing inside a similar Swedish offering, among a crop of four new issues.

The European Central Bank’s covered bond purchase programme entered a new phase this week as eurozone issuance enabled it to buy the primary market, rather than relying on secondary where supply is drying up. Its buying is good news for peripheral banks but may cause investors to desert the core.

The Spanish covered bond law could be set for profound change that will bring it into line with the best in show schemes. Proposals set out on Wednesday by the Spanish treasury tie into capital requirement regulations and will become unstoppable under their own momentum. The major challenge is not that investors will have less collateral protection but rather the transition process itself. Grandfathering existing deals isn’t a viable option, there would need to be a huge debt exchange of all existing bonds for new ones or a fundamental change in terms and conditions.

The Spanish Treasury is proposing to change the country’s covered bond legal framework and on Wednesday asked for feedback from stakeholders by November 24. The move may result in a new regime in which bonds are backed by a tightly defined indexed pool of ring fenced homogenous assets. Though this will result in less collateral, a vast improvement in the quality is likely.

The national central banks of France, Portugal and Spain were reported buying covered bonds issued by banks from their own jurisdictions on Monday, said dealers. The amounts were small and the purchases were price sensitive, they added. Offers in Banca Monte Paschi Siena’s covered bonds were unchanged as its shares came under pressure following reports it may need to raise €1.7bn in fresh capital.

S&P downgraded a number of Cédulas Hipotecarias and upgraded one Cédulas Territoriales as it begins to implement its sovereign ceiling methodology. The new ratings are now broadly in line with the other agencies and were expected. The agency is expected to announce revisions to Italian covered bond ratings that are also likely to lead to two downgrades.

Covered bond yields fell on Tuesday as Bunds rallied following a larger than expected fall in the ZEW business sentiment index and lower than expected inflation data. The European Central Bank (ECB) could be poised to commence buying on Wednesday after its scheduled meeting. Since the ECB is likely to be targeting the spread to government bonds, Pfandbriefe are likely to be on the bank’s shopping list, as they look more attractive than peripheral bonds versus their government bonds.