Spain

Following a transfer of La Caixa’s banking activities to CaixaBank, Moody’s has assigned a Aaa rating to mortgage backed covered bonds now assumed by CaixaBank.

As the first half of the year draws to a close, the original 2010 predictions for total covered bond issuance in 2011 from most analysts appear exceptionally conservative. Several analysts have revised their estimates, and predictions for covered bond issuance over the next six months are in the Eu80bn-100bn range.

Covered bond bankers expect the Greek parliament to approve austerity measures in today’s vote, but even if that happens, they do not expect much of a relief rally. If the measures are not approved then it’s likely that the consequences will be catastrophic.

Fitch downgraded Banco de Sabadell and Banco Español de Crédito (Banesto) on Wednesday, because of exposure to the Spanish real estate sector and the weak economic environment in Spain.

Moody's has assigned covered bond ratings to the newly formed Spanish Banca Civica, which is the merger of Caja de Burgos, Caja Navarra, Caja Canarias and Cajasol completed on June 21. The mortgage backed covered bonds are rated A1 and are under review for downgrade. The public sector covered bonds are rated Aa3 and also on review for a downgrade.

All eyes are on the Greek vote this Wednesday and the start of the new quarter on Friday. Until then, the primary market is likely to be quiet. Aside from those issuers that have already mandated, there are rumours that two or three German borrowers are lining up to do dollar denominated benchmarks. The secondary market has seen some flow, and after recent heavy selling, interest has been more two way with some clients tentatively picking up cheap peripheral bonds and others tempted to pick up long dated core paper yielding over 4%.

The spotlight remains firmly on the Greek tragedy with bankers anxiously awaiting fresh developments in the hope that there may be some sort of reprieve. Issuers are well funded and can probably sit it out for now but the omens do not look promising. Bank traders say that selling pressure on the peripheral covered bond markets has continued unabated and, with many banks believed to be sitting on significant inventory, there is an increased risk of near term spread widening.

Abbey, Compagnie de Financement Foncier (CFF), Dexia Kommunalbank AG, Erste Bank, La Caixa and UniCredit all made presentations to UK based investors at an event sponsored by Crédit Agricole CIB this week. Whilst it was clear that many issuers are well advanced in their funding for this year, and seem to have plenty of liquidity to draw on, it is also clear that when the funding window re-opens, issuance is likely to take-off.

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.