Spain

Multi-Cédulas came under pressure in the secondary market on Monday after Standard & Poor’s took rating action on 51 classes totalling almost €100bn late last week.

Core and peripheral borrowers are waiting for a better market before bringing benchmark covered bonds. Safe-haven names are traditionally first to take advantage of returning stability. But southern European borrowers, which offer higher yields, juicers spreads and are less flexible over pricing, will find execution easier, said bankers.

Trading in Spanish and Italian covered bonds was relatively stable against asset swaps on Monday, while they tightened versus their domestic sovereign bonds, following the news that Cyprus faces a bail-out from the European Union.

Cédulas Hipotecarias could be hit by a European Union ruling on Spanish mortgage enforcement, according to ratings agency DBRS. The ruling increases the chance of borrowers contesting mortgage enforcement proceedings and this could increase the already lengthy foreclosure period, it said.

Bankia bought back a much higher than expected €1.2bn of its covered bonds in a liability management exercise this week, paying a decent premium. Meanwhile Spanish covered bonds are performing strongly, after investors received over €5bn of Cédulas redemptions on Thursday.

CaixaBank launched its first euro benchmark covered bond in over year on Tuesday, pricing a five year transaction well inside the sovereign curve. A limited spread concession relative to its better-rated peers put some investors off, but many more leapt at a deal offering yield and a spread with the potential for performance.

Spanish Cédulas are in demand, following the outperformance of the Bono over the last week. However, this flies in the face of fundamental credit risks, which Moody’s has warned are very high.

The secondary covered bond market was busy on Monday, with dealers reporting large trades in multi-Cédulas, which have held steady, and better buying of Italian covered bonds, which are tightening.

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.