Spain

Spain has put itself firmly back on the covered bond map in the last fortnight, with large but contrasting issues from Banco de Sabadell and La Caixa. Analysts are firm on which of the two lights the way for the cédulas market, even if the supply outlook for the country is still unclear.

Banco de Sabadell’s leads were today (Wednesday) hoping that despite setting a new high of 53bp over mid-swaps, the Eu1.25bn two year jumbo could mark a turning point for the covered bond market, which has been subject to progressively wider primary market levels.

Banco Sabadell is set to price the first cédulas hipotecarias jumbo for more than five months today (Tuesday), a Eu1.25bn two year issue, having attracted orders of more than Eu2.5bn. Investors breathed a sigh of relief as secondary spreads withstood the new issue, even if Sabadell’s peers were digesting the new levels being demanded for cédulas.

La Caixa was able to size its three year puttable cédulas hipotecarias at Eu1.5bn this (Friday) morning, larger than any of the jumbo covered bonds that were launched this week.

An innovative puttable three year cédulas hipotecarias for La Caixa was successfully generating interest from investors this (Thursday) morning, with more than Eu600m of orders placed in the first hour and a half of bookbuilding.

La Caixa will be selling a Eu1bn short four year cédulas hipotecarias to domestic retail investors in the coming days at a spread of Euribor plus 10bp. The deal is believed to be the largest Spanish covered bond to be sold to end investors this year and shows cédulas issuers’ access to an investor base that is often overlooked.

Investors’ reactions to the performance of covered bonds in today’s turbulent markets was a topic of discussion at the IIR Securitisation 2008 conference in Amsterdam last Thursday. But while there was understanding of their sentiments, their greater comfort with a certain German name than top Spanish names was questioned.

Spanish banks have been in action in the senior market this week, giving the lie to the belief that the country’s financial institutions are struggling to find alternative funding sources to central bank liquidity facilities. However, the covered bond market appears as firmly closed as ever and analysts are continuing to slash their forecasts for cédulas supply this year.

Santander is said to have retreated from launching a new three year benchmark covered bond today (Thursday), after having sounded out the possibility of a deal yesterday (Wednesday).

Covered bonds have been a crucial funding source for Spanish banks in recent years. But following a surge in supply in late 2007, the cupboard of Spanish cédulas has been bare. Oversupply has often been the product’s problem, but Spain had made big efforts to moderate this and with updates to the domestic covered bond framework Spanish issuers were on track to improve their profile. In difficult market conditions, will this be enough to bring issuers back to market?

The covered bond market endured a rocky morning today, with spreads widening alongside heavy falls in equities, giving the European Covered Bond Council further food for thought ahead of its meetings in Milan later this week. But Germany could once again prove the exception in the primary market.

Barclays Capital’s analysts have slashed their forecasts for benchmark issuance in 2008 by Eu40bn, from Eu190bn to Eu150bn, lower than any bank was expecting only two months ago.