Spain

Top tier names can offer zero premiums on primary trades but lower ranked issuers have no such luxury, syndicate officials told The Cover on Monday.

After a four week gestation period, Bankinter priced the first Spanish deal since February 22, and its first funding since January 2011. The transaction was remarkable, not just for its size and pricing, but particularly for its tenor — which at five years, was well beyond the LTRO supported three year point.

Spain’s Bankinter launched a long awaited benchmark on Monday, pricing only the fourth euro jumbo in as many weeks. Spreads could widen suddenly if conditions deteriorate, warned analysts, but with supply scarce and curves steep between three to five years, investors will continue to ride the wave of optimism.

Barring a poor outcome from Greece’s private sector initiative, primary supply is poised to pick up, said syndicate bankers, who advised issuers to launch trades while the market remains receptive. Covered bond analysts are lowering their euro benchmark forecasts, however, and investors are concerned about declining issuance.

The secondary covered bond rally rolls on, grinding spreads tighter and pushing yields to their limit. But foresight and fundamentals have played no part in the lust for peripheral paper. As lucrative as the carry trade has been for banks, when things turn sour investors could find themselves trapped.

Cajamar Caja Rural has become the latest Spanish bank to try to buy back debt, tendering for up to €300m of ABS and covered bonds.

The covered bond market remains extremely well supported, with recent deals all performing well and secondary flows largely one way. Commonwealth Bank of Australia and Toronto-Dominion have mandated for dollar trades. Yorkshire and Coventry Building Societies have left blackout but could turn to sterling. Bankinter has mandated in euros but is biding its time while Cédulas spreads tighten. ING DiBa is expected soon after roadshowing last week.

A higher than expected take-up from a broader number of banks in the European Central Bank’s second long term refinancing operation has provided a lift to what is already a very well bid covered bond market.

The performance of cover pools has deteriorated, Crédit Agricole research has found after examining Moody’s, Standard & Poor’s and Fitch’s data. But this is not because of worsening credit risk but rather because of market risk.

The inaugural public benchmark from Spain’s Bankia boasted the highest spread and shortest tenor of any deal this year. It now plans to return with a longer dated trade, building on the strong demand it found for Wednesday’s deal.

The tightest and widest transactions of 2012 were priced on Wednesday, with Bankia launching a two year Cédulas at 290bp over mid-swaps, while Deutsche Bank priced a blow-out seven year trade at 22bp over mid-swaps.

Bankia restarted primary supply on Wednesday, opening books on a two year €500m trade that could easily have been increased on the back of strong demand, according to syndicate leads. Though the settlement date means the bonds cannot be used in the second Long Term Refinancing Operation, the deal still attracted interest from across the Eurozone. As the lowest rated issuer to tap the covered bond market this year, Bankia’s success could prompt other lower tier names to follow.