Spain

Caja Madrid became the latest Spanish name to come to market on Wednesday, though it did not enjoy the tight pricing of its compatriots. Its Eu750m three year cédulas hipotecárias came in the wake of twin Spanish deals from Banesto and BBVA on Monday, which priced inside initial guidance.

Banco Espanol de Crédito sold a Eu600m no grow issue off the back of one of the borrowers largest ever order books on Monday.

Banco Bilbao Vizcaya Argentaria priced the lowest yielding covered bond from a Spanish issuer in the last year on Monday.

Twin Spanish mandates in four year maturities from Banco Bilbao Vizcaya Argentaria and Banco Espanol de Credito, opened the market on Monday, after a week with scant primary activity, though strong secondary trading in cédulas.

The torrent of Spanish issuance so far in 2011 has confounded many analysts’ estimations. They predicted it would begin in earnest after Q1, as Spanish covered bond redemptions will reach a record high of Eu22.4bn this year, with the majority occurring in the second and fourth quarters.

The absence of primary flow has resulted in a better bid for higher yielding secondary paper. A few large orders have driven BBVA three year paper in by as much at 75bp from launch levels and, with the spread to second and third tier Spanish banks widening, demand has moved down the credit curve. Despite event risk over Japan, there is talk that a French and Spanish bank, not seen this year, could be poised to issue.

The primary market has got off to a very strong start, with books building on as many as four deals across four jurisdictions. The transactions, which include two tier two borrowers from peripheral markets, have attracted a total of 440 orders worth a combined Eu8bn. The strong showing bodes well for new peripheral tier two borrowers who are said to be lining up with deals this week.

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.