Spain

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.

Covered bond investors switched from short into longer dated covered bonds on Monday, secondary market dealers reported, while second tier peripheral bonds continued to attract interest. However, there was better profit taking in multi-Cédulas, which offer a modest spread over government bonds.

Ratings dominated the covered bond market on Tuesday as several Spanish deals were upgraded, while Austria’s Hypo Alpe-Adria Bank’s covered bonds were downgraded. A number of core issuers are monitoring the market, but are not yet ready to the pay the new issue premiums being demanded.

Investor appetite has shifted to non-national champions, bankers told The Cover on Wednesday, with the window for issuance wide open for lower rated peripheral banks. A Portuguese issuer could step forward soon, one banker said.

Banco Popular Español was downgraded by Standard & Poor’s on Thursday and, though general market sentiment was clearly more risk averse, with Bonos underperforming Bunds, the borrower’s Cédulas was unchanged after recently being better bid. Meanwhile, Italian covered bonds remained well supported, even as renewed Italian political instability caused BTPs to sell off.

Cédulas Territoriales, Spanish covered bonds backed by public sector assets, have benefitted from extraordinary state sponsored liquidity support programmes and this is credit positive, said Moody’s on Tuesday.

Nine euro issuers took advantage of strong market conditions to raise €8bn in covered bond funding during the first week of the year. The issuers collectively attracted €17bn of demand spread over more than 900 orders, but the pick of the bunch were two borrowers from Spain and Portugal who attracted by far the highest levels of over-subscription over the broadest range of investors.

Portuguese and Spanish issuers, Caixa Geral de Depósitos and Banco Mare Nostrum launched deals on Wednesday that, despite being aggressively priced, were heavily oversubscribed. The deals showed demand is clearly skewed to higher yielding credits, boding well for second and third tier peripheral issuers who are looking to cut central bank funding dependence.

Spain is set to follow Turkey and become the second country with a legal framework for issuing bonds backed by SME loans, according to BBVA CIB research.