Spain

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.

The Spanish housing market has started to stabilise as the fall in the value of repossessions has steadied, and house prices have begun to rise for the first time in seven years, according to a report published by Fitch on Thursday.

Caixabank announced on Sunday that it had bought the Spanish operations of Barclays, subject to regulatory approval. The Cédulas cover pools are likely to be merged, but with the risk metrics of both being fairly similar, the rating impact should be neutral, said Credit Agricole analysts on Monday.

Fitch upgraded 13 multi-Cédulas (MC) bonds on Friday saying their exclusion from the bank recovery and resolution directive (BRRD) and an improvement in credit quality was behind the decision. The upgrades have taken most deals into single-A territory, which should be a boost to the sector. However, the move serves to highlight the rating agencies' divergent opinions.

Moody’s finally got round to taking rating action on over 40 Spanish multi-Cédulas covered bonds on Friday — some two years after putting them on review for downgrade. By biding its time the agency avoided the harsh downgrades to junk many had feared would cause forced selling.