Spain

Spread widening in periphery covered bonds are a correction rather than a trend reversal, said Commerzbank’s research team this week.

Declining Spanish covered bond issuance has resulted in higher levels of overcollateralization, said Moody’s on Tuesday. This is credit positive because bondholders are better protected.

Spanish bank Kutxabank took advantage of improving conditions after a dismal open on Monday to issue the country’s fourth covered bond of the year. Following Swedbank and Bank of Austria last week with a seven year tenor, the deal is the first such tenor from Spain this year and a clear indication of where the sweet spot on the curve lies.

Many Portuguese covered bonds could have their ratings upgraded soon, after Moody’s raised the Portuguese sovereign rating last Friday. Banco Santander Totta’s most recent deal, which is a strong candidate for upgrade, was trading 8bp tighter from last week on Monday, but this was due to ECB rate cut hopes, and not credit upgrade hopes.

The covered bond market was in good shape on Wednesday as bankers reported renewed interest in peripheral names and the multi-Cédulas sector. The primary market is expected to pick up next week as Scandinavian and German issuers line up.

The recent correction lower in Multi-Cédulas following Standard & Poor’s rating downgrades last week has almost run its course. Though there is a slight risk that month-end portfolio re-balancing will provoke further near-term losses, the longer range picture is fundamentally and technically well supported, bankers told The Cover on Wednesday.

Moody’s announced a positive rating action on CaixaBank on Friday, reflecting declining asset-quality pressures, and an improvement in its earnings. The news comes as its most recent deal has performed well, and amid growing expectations that the worst is behind for the Spanish economy. With the interest rate outlook likely to remain constructive and Cédulas likely to stay technically squeezed, the sector’s performance outlook has not looked this good in years.

Banco Popular Español (BPE) returned to the covered bond market on Tuesday to issue only the third Cédulas of 2014, and the issuer’s largest covered bond in three years. Though by no means the most attractive spread seen this year, the triple digit pick-up enticed a broad audience of real money investors.

A revaluation of Spanish properties that serve as Cédulas collateral would boost transparency, said Fitch on Thursday. More transparency would improve investors’ ability to analyse cover pools and be positive for the market.

Covered bonds are finishing the week tighter with demand spurred after Bunds softened, allowing investors to hit absolute yield targets. Traders reported investors looking to extend maturities, though selective sales of long-dated Norwegian bonds have raised speculation of primary activity next week. Core to peripheral convergence is still broadly evident especially in Ireland, but signs of fatigue have become evident in long dated multi-Cédulas and selective short-dated single name Cédulas.

Spain’s CaixaBank took advantage of strong market conditions on Tuesday to issue the country’s second covered bond of the year. The funding took advantage of scarcity at the long end of the Spanish market, and concerns that the other Spanish national champions are more exposed to emerging market risks.

Spanish banks will be able to issue structured covered bonds under planned changes to corporate finance law, Moody’s said on Monday. The law change would enable issuers to structure dual recourse instruments with conditional pass through mechanisms backed by a wide range of assets issued from special funds.