Spain

Primary issuance continues to power ahead with five deals pricing yesterday and a further five deals expected to price this afternoon. Several more have been announced but, in a possible sign of things to come, two have been postponed and there is speculation that another is struggling.

After a very quiet December, market participants are not surprised to see a strong start to the primary market in the New Year, with one deal already priced and as many as seven others on the way.

German 10-year Bunds are correcting slightly higher this (Friday) morning, but a long term trend of rising yields that has been in place since August remains intact. As a result, real money accounts are increasingly hitting their target returns –a driving factor behind a hugely upsized increase of a tap for Caisse de Refinancement de l’Habitat.

Benchmark covered bond supply in 2011 is likely to be close to 2010 volumes, according to covered bond analysts, with no analysis forecasting more than a Eu20bn rise or fall relative to 2010 levels.

Caja Madrid achieved a 20% hit rate on a Eu16.846bn exchange offer that was closed on Friday, with new three year government guaranteed debt providing for the bulk of a maturity extension that the liability management exercise was targeting. The bank was tackling refinancing challenges that Moody’s today (Monday) said was facing Spanish issuers of mortgage backed covered bonds.

Fitch on Monday added four classes of triple-A rated multi-cédulas to a list of 48 that it has kept on negative review since placing them there in February. Five notch downgrades could follow for the majority of transactions under review in the absence of remedial action, according to the rating agency.

Demand from domestic and German accounts enabled Austria’s Bank für Arbeit und Wirtschaft to today (Tuesday) negotiate a difficult market backdrop to launch a Eu500m five year deal, while a Bank of New Zealand inaugural euro issue is scheduled for launch tomorrow and Caja Madrid has released the spreads for new issues and a cédulas tap being launched as part of an exchange offer.

Fitch downgraded mortgage backed covered bonds issued by Spain’s Bankinter from AAA to AA+ on Friday, following a downgrade of the issuer the day before.

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.