Spain

Markit is expected to unveil a new tradable liquid covered bond index in October or November. Though it may not necessarily be actively traded, it should provide a more useful measure than the existing index, as it will help investors to gauge more closely their performance in relation to the most relevant parts of the covered bond market.

Deutsche Hypothekenbank Hannover mandated for its second benchmark covered bond of the year on Monday. The borrower is expected to price the seven year mortgage backed trade on Tuesday, taking the number of deals in that maturity year to date to almost double that of 2011.

Spain’s CaixaBank launched a novel covered bond tender offer on Friday. The borrower will buy back at par up to €2.11bn of floating rate bonds from retail clients but participating bondholders must keep the funds in a new deposit account for at least a year after the exchange.

Sampo Housing Loan Bank on Wednesday mandated for the sixth seven year covered bond benchmark of September, and should price the trade on Thursday. Despite a renewed appetite for risk in the wider market, covered bond supply remains consigned to safer names, but a successful auction for the Spanish sovereign could pave the way for further Cédulas.

After a six month absence Banco Sabadell returned to the covered bond market on Tuesday with a two year cédulas. Though it looks like the borrower will successfully raise its target €500m in line with guidance, bankers on the deal warned that the depth of demand for peripheral paper had become too thin to realistically consider another deal until after Wednesday’s German court ruling on the legality of the European Stability Mechanism.

Three European borrowers mandated covered bond deals on Monday, taking advantage of what could end up being only a brief funding window in the wake of the European Central Bank’s announcement last week that it would support peripheral sovereign debt markets.

Moody’s cut Santander Totta’s covered bonds in line with the Portuguese sovereign’s new rating ceiling, which caps all the country’s covered bonds one notch above junk.

Covered bond issuance is on hold while the European Central Bank’s meeting in Frankfurt commands all attention. ECB president Mario Draghi is expected to provide details of a sovereign bond purchase programme and peripheral sovereign spreads have already tightened in expectation. But analysts said investors fearing a disappointing programme could switch to into covered bonds — with Cédulas the most likely to benefit from such a shift.

This week’s two covered bond deals have helped increased activity in secondary markets, traders told The Cover. There has been selling pressure in the senior unsecured but this has only translated to more mixed flow in covered bonds.

Covered bond issuers proved reluctant to follow ING’s lead and launch trades on Tuesday, as activity shifted to the senior market. But given the strong reception for secured issuance syndicate bankers remain confident of supply later in the week.

Intesa Sanpaolo was the most likely candidate to follow UniCredit’s groundbreaking €750m reopener, but could face an even higher spread, investors told The Cover on Wednesday. Italy also represents the only hope for peripheral supply in the short term, as Spain remains priced out of the primary.

UniCredit has rewritten the rulebook this week by pricing a covered bond 100bp tighter than where the Republic of Italy can fund itself. But, other than Intesa Sanpaolo, it is unlikely any other issuer could follow suit.