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.

Moody’s expects negative rating actions on covered bonds to substantially outnumber any positive actions in the year ahead, due principally to weakness in the sovereign and banking sectors.

After a busy close to last week, covered bond activity has followed through this week with Abbey, Dexia MA and Westpac announcing deals while active bookbuilding commenced on Abbey, Banco Populare and Bayern LB.

Spain’s Bankinter has priced a Eu500m, no grow, two-year cédulas hipotecárias at 310bp over mid-swaps which, though inside 315bp area guidance and a 320bp price whisper, was the widest primary print for any Spanish issuer on record.

Fitch yesterday (Wednesday) downgraded mortgage backed covered bonds issued by Caja de Ahorros de Murcia from AAA to AA, and removed them from negative review, following its downgrade of Caja Murcia’s issuer rating from A+ to BBB+.