Spain

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.

Bankers expect more bad news to come out of Portugal and the correction being seen in peripheral covered bonds may therefore have further to go. But this bad news fundamentally does not change the positive longer term picture for the rest of peripheral Europe. A technical retracement had been long overdue and will provide a rare buying opportunity for real money investors and banks looking to cover their shorts.

Standard & Poor's upgraded BBVA’s mortgage backed covered bond programme from A to AA- after the European close on Tuesday, while Fitch upgraded UniCredit’s Italian programme from A+ to AA-. The upgrades take the programmes towards a level that gives regulatory benefits. UniCredit has most to gain.

Austrian covered bonds were steady on Tuesday after a swathe of Moody’s senior downgrades hit covered bonds, leading bankers to say its methodology has serious weaknesses. Separately, Standard & Poor's upgraded €27bn of multi-Cédulas in a move which analysts said would have little impact and could soon be reversed. The fact multi-Cédulas have outperformed Austrian covered bonds all year is due to the other factors.

BBVA announced that it will amortise two floating rate note retained Cédulas Hipotecarias on Wednesday. The move will increase overcollateralisation (OC) in its cover pool and could potentially result in a rating upgrade to the AA area with Standard & Poor’s, said Crédit Agricole analysts.

Following the June 5 ECB announcement Bonos have rallied strongly, while Cédulas have reacted to a lesser extent, leaving clear performance potential, a Barclays research note published on Thursday argues. But what is nice in theory is more difficult in practice, traders said — large blocks of Cédulas are difficult to source without pushing up prices.

Covered bond secondary markets opened on a much firmer footing on Friday, with dealers and clients singling out higher yielding weaker credits, particularly in the periphery, where offers are hard to find. The move came after Thursday’s stimulus package from the European Central Bank, and after Standard and Poor’s upgraded several Spanish banks.

BBVA returned to the covered bond market for the first time in over a year on Wednesday with a 10 year Cédulas that attracted a fairly granular book. The coupon paid was the lowest ever for a 10 year in the history of the Spanish Cedulas market.

Non performing loans in multi-Cédulas deals are continuing to rise according to Moody’s. And Bank of Spain data released last week showing that the trend maybe levelling off, understates the actual level by as much as half. See The Cover's interactive chart for more.