Spain

Apparently gentlemen prefer blondes but marry brunettes. Well from a performance perspective, investors should buy covered bonds from more volatile jurisdictions in the short run and then dump these for more stable products in the secondary market.

The UK government’s extension of guarantees relating to Northern Rock obligations on 18 December was seen as good news for covered bondholders. Moody’s downgraded Northern Rock’s bank financial strength rating from D+ to E+, but said that the extension “further underpins the Aa3 bank deposit and senior debt ratings”.

The Spanish parliament has approved the planned amendment to the Spanish covered bond legislation, which will come into effect the day after being published in the official state bulletin. Meanwhile, The Cover understands that a Eu3.5bn AyT Cédulas Cajas deal expected imminently will be mainly retained for liquidity purposes by the Spanish savings banks and partly privately placed with end investors.

Ahorro Corporación Financiera has decided to postpone any new AyT Cédulas Cajas issue, having last week mandated five banks to sound out investor sentiment towards a potential Eu1bn-Eu1.5bn three to five year deal.

The execution of the Eu1.05bn two year IM Cédulas 12 issue has shown that while the cédulas market is open, it is barely ajar. When the books were closed yesterday (Tuesday) afternoon the deal was only just oversubscribed, and Ahorro Corporación Financiera remains undecided over whether or not to tap the market next week with a Eu1bn-Eu1.5bn three to five year AyT Cédulas Cajas issue.

Bookbuilding for IM Cédulas’s Eu1.05bn two year multi-issuer deal got off to a steady start this morning, with its Eu500m of demand in the first two hours reflecting the measured pace of the five year Santander trade that reopened the cédulas market two weeks ago.

The growing importance of the cédulas market to Spanish banks in light of the dislocations in the asset backed securities market has been underlined by BankInter’s announcement that it will be launching its first cédulas hipotecarias. The bank has been one of the leading exponents of securitisation in Spain.

The maturity of IM Cédulas XII has been fixed at two years and Barclays Capital, Commerzbank, LBBW and Natixis are expected to launch the deal in the coming days. Other issuers, however, are said to be holding off from confirming mandates given the redoubling of risk aversion in the market.

Ahorro Corporación Financiera is testing the water for a possible Eu1bn-Eu1.5bn three to five year AyT Cédulas Cajas issue for launch in the week of November 19, having mandated Danske Bank, Dresdner Kleinwort, DZ Bank, Merrill Lynch and Société Générale to sound out the market today (Wednesday).

Santander has successfully executed the first public Spanish covered bond since the liquidity and credit crisis struck, a Eu1.5bn five year deal that allayed fears that spreads in the cédulas market could widen in the face of new issuance.

Santander appeared to have pitched its five year cédulas hipotecarias - the first since the market closed in August - at the right spread guidance this morning, with investors responding favourably to the 13bp over mid-swaps area talk.

Panellists at the Euromoney Spanish Capital Markets Forum in Madrid said yesterday (Wednesday) that the credit and liquidity crises of this year would not simply widen spreads, but reconfigure the use of securitisation and covered bonds.