Spain

Spanish and Italian banks are expected to take advantage of the bid for peripheral covered bonds, as witnessed last week by the strength of demand in Banca Carige’s trade, two taps from peripheral issuers and Santander’s blow-out deal. La Caixa has mandated for a four year as other Spanish borrowers line up and Italy's Banco Popolare has mandated.

After Bankinter and Banca Popolare Di Milano successfully issued taps on Wednesday, Banca Carige will today price an Eu500m deal on the back of Eu1.2bn demand. Given that the order book and deal size could have been heavily increased, lingering doubts over tier two borrowers’ access to the covered bond market should be dispelled.

The primary market opened with a bang on Monday morning as books on the newly announced Santander four year exploded with Eu4bn of orders. But the strength of demand for this national champion is likely to provide an interesting contrast to Banca Carige, which has embarked on a three day roadshow.

Portuguese banks, with Eu13bn of bonds maturing in 2011, are fast approaching the first anniversary since any of their number last sold a benchmark bond, causing consternation among bankers and putting the spotlight on the European Central Bank ahead of a potential tightening in its provision of liquidity.

The covered bond market remains primed for issuance despite the quietest week so far this year in terms of primary market activity. Spanish borrowers may join Abbey National and Westpac New Zealand in the market next week, though Abbey’s inaugural sterling issue and Westpac’s first covered bond transaction are set to take centre stage.

Taking advantage of demand for high coupon peripheral debt, La Caixa yesterday (Thursday) priced a long awaited Eu2bn five year cédulas hipotecárias. Despite the allure of a 5% coupon and a relatively tight spread to its senior unsecured, the trade was by no means a foregone conclusion in the context of underlying sovereign spread volatility.

The covered bond market is hoping a national champion will soon bring the first Portuguese deal of the year, following the sovereign’s successful bond auction on Tuesday. Elsewhere, Spain’s La Caixa mandated banks for its deal and LBBW is in the market with a dollar benchmark. Meanwhile, the pricing of two German deals on Tuesday went as smoothly as anticipated.

The merger of several Spanish cajas into a private bank, announced last week, will lead to credit positive outcomes and the extinction of multi-cédulas, according to Moody’s.

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.