Spain

The Spanish issuer has mandated Banco Cooperativo Español (no-books), BBVA, Crédit Agricole CIB, DZ Bank and HSBC as joint-lead managers for a euro-denominated mortgage-backed Cédulas. The seven year deal is expected to launched on Tuesday and will be rated A1 by Moody's.

Caixabank’s plans to acquire Banco BPI will damage the issuer’s solvency and Moody’s has put the issuer rating on negative watch. Though the rating of both its mortgage and public sector covered bonds will also be dragged down, planned changes to rating agency’s methodology should ultimately mean the ratings end up unchanged.

Standard and Poor’s has completed the review of Spanish mortgage covered bonds following a change in its methodology, leading to a number of upgrades. Analysts said the agency’s rating process was complex and not easy to understand.

After pulling a 10 year deal last year, AIB Mortgage Bank returned to the market on Tuesday to price a very successful seven year. At the same time its Spanish peer, Bankinter, chose to issue in the same 10 year maturity that foiled AIB last year. Both banks achieved a solid result suggesting better quality peripheral covered bond issuers have not been affected by events in Greece.

The larger than expected quantitative easing programme announced by the European Central Bank on Thursday has turbo-charged the well-established bull flattening trend in covered bonds and trading volumes have tripled from earlier in the week. With the long end of French market now offering a tempting spread to OATs, real money buyers are set to return. And with Bonos and BTPs rallying hard, relative value between covered bonds and sovereigns should soon be restored in the Cédulas and Obbligazioni Bancarie Garantite markets.

Moody’s upgraded 12 Italian and Spanish covered bonds into “Aa” territory after the close on Wednesday, taking the bonds from category 2A to 1B in the liquidity coverage ratio (LCR). Though this should theoretically improve bank demand, last week’s LCR impact study published by the European Banking Authority (EBA) showed most banks had already met their minimum LCR requirement, suggesting scope for an improvement in appetite will be limited.

The covered bond primary market maintained robust momentum on Thursday as another four issuers priced deals. The seven year tenor remains the firm favourite with two new trades on Thursday taking the total to eight this year.

Cajas Rurales Unidas is set to become the second Spanish issuer to launch a deal this week, having mandated leads for its third euro benchmark. The transaction is likely to offer the most attractive spread seen in covered bonds this year, and could reprice the issuer’s curve.

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.