Spain

The larger than expected Eu600m tap of Bankinter’s two year cédulas speaks to potential demand for tier two Spanish issuers. Though no firm rumours are in the market for peripheral issuance next week, bankers believe the moment is there – particularly given that a less certain growth outlook may potentially close the funding window for more challenged names.

After two weeks without benchmark issuance market participants are looking past the UK royal wedding and May Day holiday to a resumption of primary market activity on Tuesday. Syndicate officials were modest in their expectations however as, with peripheral markets effectively closed and some core names in blackout, prospective issuance from for core jurisdictions appears sparse.

Secondary trading has picked up pace in light of limited primary issuance. An attractive rates environment has ensured continued demand for long dated French paper, while selling has increased in peripheral covered bonds now flat to the government curve.

After failing to get a six-year cédulas away earlier this the week, La Caixa successfully priced a five year deal on Tuesday. The eventual transaction, which saw two leads replaced, illustrates that, despite an improvement in fortunes for Spain generally, investor demand is clearly focused on the short to medium part of the curve for peripheral names; anything longer becomes much more price sensitive.

La Caixa returned to market on Tuesday, after postponing a six year cédulas trade on April 5, amid claims the deal struggled to gain traction on the basis of an over-ambitious spread whisper.

On the back of conducive bank finance regulation, covered bond issuance is soaring, writes Bill Thornhill. Meanwhile several countries, most notably the US, are moving towards establishing fresh covered bond markets

While Coventry Building Society is expected to bring an inaugural sterling deal this week, via leads BNP Paribas and Barclays Capital, the majority of regular issuers may decide to wait until after Easter.

Abbey National was the sole benchmark covered bond issuer on Thursday, becoming the first repeat visitor to the sterling space this year, though other names are also expected to return. The comfortably oversubscribed £1.25bn 10 year print enjoyed strong participation from foreign investors, yet another encouraging sign of the sterling market’s growth.

Record covered bond issuance almost reached parity with senior unsecured issuance in the first quarter of 2011, a trend that is unlikely to be reversed by demand constraints on the product, said bankers this week. But widening spreads between the products could put the brakes on.

Amid renewed supply from core issuers, and ratings pressure on peripheral jurisdictions, Kutxa (Caja de Ahorros y Monte de Piedad de Gipuzkoa y San Sebastián) launched its second ever standalone benchmark deal on Thursday.

Covered bond secondary market levels have remained largely unaffected by Moody’s downgrade of 18 Spanish covered bond programmes on March 25, which followed a downgrade of the borrowers’ issuer ratings. Although all the downgraded institutions remain under review, or on negative outlook, market traders said the immediate effect of the cuts has been negligible.

The Netherlands NIBC Bank brought primary market activity to a close this week, launching an inaugural Eu500m three-year deal on Friday via leads LBBW, Natixis, and RBS, which priced the new issue at 105bp over mid swaps.