Spain

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.

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.