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Covered bonds: Mixed fortunes for Iberian borrowers

The recent burst of issuance in Spain appears to have run its course, but the news is better in Portugal.

After months in the wilderness, the Spanish covered bond market revived but only briefly. Banco Sabadell reopened the sector at the beginning of May with the first jumbo cédulas hipotecarias issue since November. The two-year, €1.25 billion deal generated a €2.5 billion order book, and sparked off a two-week frenzy of issuance that included deals from BankInter, Bancaja and Caixa Catalunya.

But a fortnight after the Sabadell deal, Caixa Galicia was forced to cap the size of its two-year deal at €500 million, having had hopes of raising as much as €1 billion. The bank was forced to limit the transaction after the order book barely passed €500 million, and this despite pricing the deal at 65 basis points over mid-swaps. Caixa Galicia’s deal was the only one to come to market since the Sabadell deal that didn’t achieve benchmark status. "The market can only absorb a finite amount within the 53bp to 65bp pricing range," says Rob Robinson, covered bond analyst at Merrill Lynch. "To get something done now, that range may not be sufficient – you may have to go a little wider." It would seem that the recent spate of supply is a blip rather than a comeback.

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