Spain

New euro benchmark covered bond supply appears on course to hit the market tomorrow (Tuesday) as issuers continue with preparations for deals despite a backdrop of uncertainty about whether or not a bail-out of Ireland will be set in motion.

Fitch downgraded Spain’s Bankinter from A+ to A, on negative outlook, yesterday (Thursday), because it believes the bank remains dependent on wholesale funding, a reliance that puts pressure on its liquidity and profitability.

Caja Madrid and Bancaja yesterday (Wednesday) launched an exchange offer that includes an opportunity to swap covered bonds issued by the borrowers, which together with five other savings banks are forming a new alliance, into government guaranteed securities, senior unsecured notes and/or cédulas hipotecarias to be issued by Caja Madrid.

A Eu350m Cajamar tap yesterday (Wednesday) brought euro benchmark issuance this week to Eu700m, the lowest level since supply restarted at the end of August, but market participants expect primary market activity to pick up next week.

Spain’s Cajamar is gathering orders for a tap of a 3.5% October 2014 issue that is being marketed at a level around 205bp wider than where the original deal was sold in October 2009, while Crédit Agricole yesterday (Tuesday) priced a Eu350m increase of a October 2025 deal in response to domestic investor interest in longer maturities and some shorts in the market.

The benchmark covered bond market opened for issuance on Tuesday, but was restricted to a Eu350m tap of a 4% October 2025 Crédit Agricole deal. But Spain’s Cajamar is also testing investor interest for an increase of a 3.5% October 2014 issue with what would be the widest spread so far in the benchmark market.

The primary market for benchmark covered bonds was quiet this (Monday) morning, with public holidays in many parts of continental Europe a contributing factor, but one of several Spanish banks to have reported third quarter results is said to be considering accessing the market.

Concrete plans for new issue projects next week appeared thin on the ground this (Friday) morning, but this could be a misleading indicator of forthcoming supply. At least three issuers are on the road next week, Spanish banks are emerging from blackout periods, and bankers said that French issuers are likely to be encouraged by a successful Compagnie de Financement Foncier Eu1bn 10 year transaction sold yesterday.

Banca Popolare di Milano, Kutxa and Swedbank Mortgage accessed the benchmark covered bond market this (Tuesday) morning to offer investors a medley of new euro issues after a day of preparation yesterday that one syndicate banker said was necessitated by limited liquidity in the market.

Two inaugural euro covered bonds backed by residential mortgage backed securities were this (Monday) being flagged for possible launch this week.

Moody’s assigned a Aa1 rating to mortgage backed covered bonds of Caja España yesterday (Tuesday), after rating the new entity Baa1, on stable outlook.

The covered bond market is in good condition and generally open for issuance, syndicate bankers reported today (Monday), but with no new mandates publicly announced since last Thursday a deal from Italy’s Intesa Sanpaolo was this morning the most concrete new issue project in the pipeline for the week.