Spain

The primary market has slowed to a standstill today, though transactions are in the pipeline and could be due this week — including some new names. In the secondary market, the peripheral sovereign sector has softened but the bid for peripheral covered bonds continues to look well placed.

The primary market continues to steam ahead with BBVA’s latest five year deal proving the major talking point, after it built an astounding book, by far the largest of any deal this year. CM-CIC and Banca Monte dei Paschi di Siena are also in the market with three and seven year deals respectively.

The primary market picked up pace sharply today with a slew of rumoured deals all surfacing at once to take advantage of the continued bid at the long end of the curve – thanks to a rise in underlying yields and receding sovereign risk concerns. By mid morning three benchmark transactions had built combined order books of about Eu10bn. Lloyds TSB probably takes centre stage for its extraordinarily long duration and, at £2.5bn, its immense order book.

A provincial Spanish court decision allowing borrowers to walk away from their mortgage obligations will have no effect on Spanish RMBS or covered bonds, as other courts are expected overrule the decision, say Fitch and Moody’s.

Fitch and Moody’s placed La Caixa (A+/A2) on negative review last Friday. The rating comes despite a 45bp rally in its senior unsecured CDS at the time it reported results, and ahead of a rumoured five year cédulas issue. Despite the seemingly negative repercussions the prospective deal would remain triple A, even if a downgrade followed.

After good buying in the long end of the French curve at the end of last week, spurred by the back-up in yields, secondary market activity has slowed markedly and the focus is once again back on the primary where there are several deals are in play. The Italian market is taking centre stage amid concerns that one issuer might crowd out the other.

Banco Popular Español (BPE) launched the fourth Spanish covered bond of 2011 on Wednesday, amidst hopes that the record premiums which recent Spanish issuers have been forced to offer, may be set to fall.

Secondary market activity has picked up across the board with bankers reporting decent interest in France the UK long end, Germany and, most importantly, Spain.

Looking ahead, market participants expect more deals to emerge. This morning Banca Monte dei Paschi di Siena announced that Credit Suisse, JP Morgan, Mediobanca, MPS Capital Services, Natixis and Nomura will lead manage a euro benchmark in the near future. Elsewhere in Italy, Credito Emiliano is expected having been on a non-deal roadshow last year.

Sentiment in Spain has improved dramatically in the last week, helped by a buoyant SSA sector along with an announcement from the Spanish finance minister of a set of measures which include ensuring funding for Spanish banks. Second and even third tier Spanish institutions could conceivably issue, though it’s likely more time will be needed before a multi-cédulas deal is possible.

Santander’s Holmes 2011-1 issue will feature a hard bullet 0.9 year ‘A1’ dollar tranche, as well as a 2.9 year ‘A2’ dollar tranche, and 4.9 year ‘A3’ euro and ‘A4’ sterling tranches. The issuer has preplaced the $500m A1 notes. All the tranches will be floating rate, with the ‘A1’ notes benchmarked to one month Libor, and the other tranches to three month Libor or Euribor.

Measures to be implemented by the Spanish government in order to restore market confidence in the economy and domestic financial institutions could allow lower tier Spanish banks to resume issuance analysts say.