Spain

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.

Monday was another quiet day for the covered bond market, though syndicate officials remained confident mandates would come. Market participants stressed that covered bonds were not the only asset class where supply was scarce, and were hopeful that as issuers leave blackout and investors become increasingly cash rich, issuance was only a matter of time.

A new world order in debt markets could soon be ushered in with the first covered bond new issue to be priced through domestic government bonds, investors and bankers were forecasting this week.

Standard & Poor’s on Friday cut public sector backed covered bonds issued by Banco Bilbao Vizcaya Argentaria from AAA to AA+, on negative outlook, because of its criteria concerning the rating of non-sovereign issuers that exceed the rating the sovereign in the European Monetary Union.

Secondary trading has paused for breath lately, but there are still good pockets of liquidity and interest – specifically for French, UK and to a lesser extent Dutch and Scandinavian deals. The primary market could be due another slow week though a French deal is highly likely, with Société Générale tipped as a probable candidate. UK issuers are looking at the dollar market but there is speculation that one is looking at sterling.

Amid growing concern over peripheral euro sovereigns, covered bond analysts are focusing on the exposure to the troubled periphery of public sector cover pools in core jurisdictions.

Primary market activity was confined to a lone mandate from Dexia Municipal Agency on Monday, though issuers across core Europe are watching the market closely, said syndicate officials.

All Portuguese benchmark deals now trade inside government bonds.

April was the first month without record issuance, and the first in which total supply was less than that of the previous year. Deutsche Bank analysts report that year to date supply of euro benchmarks remains at a clear historical high however, with public issuance from the UK also at record levels. Borrowers from Norway and Spain, among others, have been suggested as likely candidates for next week, and though no mandates have been announced, syndicate officials said the market remains open for peripheral and core names alike.