Spain

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.

Banco Popular Español returned to the covered bond market for the second time this year and reduced its reliance on retained issuance to bring a four year Cédulas, that was increased from €500m to €750m. Despite being barely oversubscribed and overly reliant on the domestic bid, the book was granular.

Sparebanken Vest Boligkreditt and Nordea have respectively mandated leads for a roadshow and a deal and another deal from Spain this week has not been ruled out.

The secondary covered bond market saw modest flows on Friday but dealers reported a stronger bid for core names, in particular long end French deals which have not reacted to downgrades. In contrast, the multi-Cédulas sector remains offered reflecting its large exposures to the recently downgraded Bankia.

Core European covered bonds were supported on Thursday despite recent downgrades. But weaker Spanish names were under pressure on concerns that the European Central Bank could be poised to reconsider the repo treatment of covered bonds relative to ABS. Meanwhile, primary hopes were hit after it emerged that programme documentation delays could cause Canadian Imperial Bank of Commerce (CIBC) to launch its benchmark in September rather than next week.