Spain

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.

The mood is buoyant and several deals look likely to be announced before long. LTSB and Nationwide have been added to the existing rumours of La Caixa and Sabadell, but with sentiment improving issuers are thinking the market is on a roll so maybe they are better placed to wait a few days more, in which case funding costs could be shaved by even more.

Despite decent selling of 10-year paper in the secondary market, the overall tone remains very positive. In the primary market this was most conspicuous in the books for SG’s Eu1bn 12-year, which has attracted the largest oversubscription so far this year. Banco Popular's deal has also gone smoothly.

The covered bond primary market has ground to a halt as players look to the upcoming EFSF issue, which is due to price Tuesday. Once that’s out of the way there are high hopes the market will rebound, particularly for Spanish bonds which have performed well recently.

The primary market for European bank issued covered bonds appears to be gently slowing with just one deal from France’s Dexia MA pricing yesterday and another from Germany’s Aareal closing books at midday. In contrast a number of transactions are in the works from Canadian and Australian banks across a range of currencies –inaugural deals from new issuers and several rumours of others.