Spain

Bankia became the latest Spanish issuer to announce a covered bond buyback on Friday, and will take offers on several mortgage backed Cédulas over the next two weeks.

Bankia became the latest Spanish issuer to announce a covered bond buyback on Friday, and will take offers on several mortgage backed Cédulas over the next two weeks.

Wednesday’s sterling deal from Bayerische Landesbank came as welcome relief to supply starved investors but the paucity of supply has also been particularly marked in the euro market, where issuance volumes are half of last year’s shrunken levels. The technical mismatch is helping to spur demand in the secondary market where Spanish deals are once again in vogue.

Changes to Spanish mortgage law will not lead to lower overcollateralisation, as the rules will only apply to new loans, Fitch said on Tuesday, contradicting an earlier statement from Moody’s.

Spanish government bonds performed well on Friday but long term concerns about the outlook for Spain are spooking traders who are increasingly willing to consider leaving illiquid Cédulas shorts uncovered. In core markets, traders are focused on the Bund swap spread and suggested that a potential sell off could be accompanied by a spread tightening.

Plans to amend Spanish mortgage law will hit covered bond investors and could limit credit flow into the country, Moody’s warned on Monday, as they will weaken lender recourse to borrowers, and lower the level of over-collateralisation.

Cédulas have dominated covered bond issuance so far in 2013, aided by a remarkable rally that has seen nine deals printed this week. However, oversubscription rates have dwindled this week, and both core and periphery issuers may need to increase what they offer investors to get their attention in a crowded market.

Banco Santander’s first covered bond for nearly a year, a €2bn five year, surprised the market by hitting the middle part of the curve on Monday. The spread did not change from initial price thoughts to final terms, which showed the plan had been to take a large chunk out of the market, bankers told The Cover.

Deutsche Genossenschafts-Hypothekenbank has hired banks for a mortgage Pfandbrief, which is pencilled in for Tuesday. It may have company from Commerzbank, which The Cover understands is also eyeing Tuesday for Europe’s first ever SME structured covered bond.

Standard and Poor’s announced on Thursday that it had revised its categorisation of all Spanish covered bond programmes from Category 1 to Category 2, thereby lowering the maximum rating uplift between an issuer and its covered bond programme from seven notches to six.

Issuers looking for rehabilitation in the capital markets and wanting to wean themselves off central bank funding must be careful to ensure they issue strategic deals that have a high chance of performing. This should lower their long term cost of funding and enable greater market access.

After three senior euro bond issues this year, BBVA this week chose to extend the duration of its liabilities with the issuance of its first covered bond of the year. At 100bp through the sovereign, BBVA was the first Spanish bank to borrow significantly cheaper than the government. However, at €2bn the deal size was too large and led to a dismal secondary market performance.