Spain

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.

There is an even chance that two deals could surface from Europe’s core and periphery next week, bankers said on Friday, but potential issuers have been perturbed by the performance of this week’s two deals, both of which have softened slightly. However, in both cases there were specific factors at work that are unlikely to impinge on prospective deals where there is high confidence of a strong reception.

Cajas Rurales Unidas plans to sell a five year Cédulas Hipotecarias on Thursday, six months after making its covered bond debut. However, this is unlikely to herald a wave of Spanish covered bonds, said bankers. The issuer’s first deal had widened considerably following a Moody’s rating downgrade, but now trades well inside the reoffer.

Spanish covered bonds issued by tier two banks could fare better than their Italian equivalents, even though Italian spreads have been less volatile than Spanish ones this year, RBS said on Thursday.

Repossessed Spanish properties are being sold at levels on average 71.6% lower than original valuations, Fitch said on Thursday. New mortgages are being originated with LTVs of 100%, affordability has not improved since 2008 and housing stock remains exceptionally high, its report said.

Banks continue to favour senior unsecured over covered bonds, but spreads will soon start to reflect the fundamentally weak claim of senior bondholders, RBS said on Wednesday, particularly for Spanish deals.

Banco Bilbao Vizcaya Argentaria has begun updating the value of properties backing mortgage loans collateralised in its Cédulas. Though this is likely to lead to a decrease in the overcollaterlisation (OC) ratio, Moody’s applauded the move as it will improve transparency on the credit quality of the cover pool assets.

Spain’s new export finance covered bonds, Bonos de Internacionalización (BI), have a weaker credit profile than existing export finance covered bonds but greater flexibility, Moody’s said this week. The Spanish authorities’ introduction of the new bonds comes as they work to improve the efficiency of covered bonds as a funding tool.

Multi-Cédulas are enjoying some investor support, and RBS says they offer good relative value. However many of these Spanish multi issuer programmes face being downgraded to junk and are lagging the country’s government bond rally. Downgrades would spark forced selling, which the existing investor universe would not be big enough to absorb, Crédit Agricole has warned.