Spain

Miguel Angel Gadea, head of funding at Cajas Rurales Unidas (Cajamar), spoke to The Cover on Wednesday, following its debut deal as a merged entity. Cajamar, which plans to be a regular issuer, has grown deposits, expects to raise its core capital ratio this year and aims to stabilise its ratio of non-performing loans with a proactive approach to servicing.

Cajas Rurales Unidas (CRU) accessed capital markets for the first time on Tuesday, bringing a €500m three year covered bond. Price discovery was tricky, given the absence of liquid comparable deals.

Bankinter’s latest €500m tap this week came with a tighter spread and drew more international accounts than the borrower has managed with any benchmark deal in recent years. As its issuance costs drop its loan portfolio is becoming profitable, and though it remains barred from the senior unsecured market, comfortable covered bond funding costs and foreign demand are steps in the right direction, a funding official told The Cover.

Moody’s has downgraded Italy’s Banca Carige and will turn its attention to the issuer’s covered bonds, which traders expect to come under selling pressure in the secondary market.

The transfer of assets from Spanish banks to the country’s bad bank (Sareb) has reduced the collateral available to protect Cédulas investors, Fitch said on Wednesday. However, the fall has been compensated by an increase in higher quality eligible collateral, so the net reduction in security value has been relatively small.

Sparkasse KölnBonn is set to announce a deal in the belly of the curve, somewhere in the region of five years, bankers told The Cover on Monday. Other issuers, possibly from Europe’s periphery, are also considering deals, said bankers, after further strong performance in the secondary market.

Covered bond issuers decided against bringing benchmark bonds on Friday despite a better backdrop, but there are several potential deals in the pipeline and stronger sentiment should encourage issuers looking to come next week, said bankers.

Covered bond syndicate officials are predicting as many as five deals will be launched next week following a wave of successful core transactions.

Legal changes in Spain’s banking system are positive for covered bond holders and time subordination is no longer a factor in Cédulas recoveries, said Fitch in a report published on Friday.

Net euro denominated covered bond supply has dropped to the lowest level since the euro begun. And with a surfeit of central bank liquidity alongside continued balance sheet shrinkage, this trend looks set to continue, suggesting that the already measly supply forecasts for the year could be revised lower.

Standard & Poor’s brought a ray of sunshine to the world of Cédulas ratings this week, when it upgraded NCG Banco’s bonds because of improvement in the quality and maturity profile of the bank’s loan book.

Since UniCredit’s groundbreaking covered bond deal last year, a plethora of issuers have priced inside their sovereign. This new financial order has led to a re-examination of how covered bonds are priced and whether sovereign risk has much bearing on covered spreads anymore.