Spain

Issuers are waiting for some better news out of Greece before deciding whether to press on with transactions, despite most receiving strong interest during roadshows. After selling in the secondary market on Thursday, sovereign spreads on Friday tightened on rumours of an aid package for Greece. But with market sentiment yo-yoing from one day to the next, any window for issuance before the summer lull is likely to be narrow, and perhaps too risky for first time euro borrowers such as ANZ Bank.

Santander’s latest cédulas territoriales could represent a shift in the funding policy of Spanish issuers, which are constrained by limited issuance capacity, said Natixis analysts. The transaction's poor result, however, could dissuade Spanish borrowers from turning to cédulas territoriales as their capacity to issue cédulas hipotecárias decreases.

Fitch downgraded cédulas hipotecárias issued by Caja de Ahorros y Monte de Piedad de Navarra from AA+ to AA on Friday, and removed them from rating watch negative, following a downgrade of the issuer rating from A- to BBB+.

Dealers report a strong bid in covered bonds this Wednesday morning, though some selling in the five to 10 year segment was welcomed as it helped cover shorts. Dexia Municipal Agency remains under pressure and with Bonos tightening, cédulas have underperformed, triggering some selling.

As a proxy for national mortgage markets, LBBW research has taken a closer look European mortgage pool statistics and macro-economic housing market trends. Controversially, it finds that Spanish NPLs have halved in the last two years. In contrast Scandinavia, which is stereotyped as safer than safe, could be heading for trouble as house prices reach 30-year highs.

After the activity and drama of the first part of the week, Ascension Day holidays across most of Europe have lent a quiet tone to the market and a more sedate close is anticipated. But with as many as five deals mandated and a few others rumoured, the pace is likely to pick up next week.

The covered bond primary market exploded into life on Tuesday with new developments on as many as eight deals — of which four or even five, are expected to price during the day. The constructive primary market is largely due to an improvement in underlying market sentiment.

The eurozone sovereign debt crisis has tested the covered bond product like never before. Katie Llanos-Small examines how covered bonds from the periphery have performed during the crisis, and asks what might happen if a eurozone sovereign were to default.

The possibility of a covered bond issuer pricing a deal inside government debt, once considered highly improbable, is now conceivable, say Deutsche Bank and Barclays Capital.

Secondary market activity has been focused on Spain lately with end account selling noted in multi-cédulas and single names which, among others, have included BBVA. Though it’s technically possible for the issuer to bring a deal flat to the underlying government, some bankers think that the funding window may have passed, albeit temporarily.

Spain’s Caja Vital Kutxa brought an inaugural covered bond issue to market on Monday, launching a Eu200m no grow trade through joint leads Bilbao Vizcaya Argentaria and Natixis.

Fitch placed 25 classes of multi-issuer cédulas hipotecárias on rating watch negative on Monday, because cédulas hipotecárias issued by Caja de Ahorros del Mediterráneo (CAM) form part of their collateral.