BBVA eyes covered bond market return

According to a source close to the issuer, BBVA could bring a deal as soon as tomorrow ahead of going into blackout according to covered bond syndicate bankers. It would be its first covered bond in the European market since March. The issuer last accessed the European senior unsecured market in April.The emergence of government-guaranteed deals from the likes of FROB and ICO are believed to be setting the scene for the emergence of public issues from the top Italian and Spanish banks.The corporate bond market has also reopened for peripheral credits, with Telecom Italia and Iberdrola both prepping deals today.”Certain peripheral supply is showing that investors are willing to buy selective Spanish and Italian paper in what is now a pretty supportive market,” said a syndicate official.”This would be a good opportunity for the top names to start looking but we are still a long way away from seeing second and third tier peripheral issuers in the market.”The Spanish market appears an obvious choice for investors as underlying government spreads have been relatively stable over the past week around 300bp over Bunds at 10-years. BTPs have slightly underperformed, now at 365bp from 352bp last week.On the covered side, spreads improved last week on the back of the ECB announcement, but in recent days OBGs and Cedulas have stabilised and in some cases are a touch wider following a number of rating actions on Italian and Spanish banks.According to one syndicate official, the emergence of supply from Spain and Italy will be dependent on spreads.”Spanish and Italian banks are extremely price sensitive in the current market so we will only see deals if the market is able to absorb very aggressive pricing,” he said.”What’s expensive today might be cheap in November when central banks of the Eurozone start buying covered bonds in the primary as well as secondary markets.”Meanwhile, another syndicate banker said that while the tone in the market was better, it might be too early for a Spanish deal.”The market is definitely looking better for it, but I don’t know if EUR1bn is doable to be honest,” he said. “We’re seeing better tone in secondary, but no huge buying flows.”The Spanish market has been shut since June, when Santander sold a EUR1bn five-year. The Italian market has been slightly more active as UniCredit managed to sell a EUR1bn 10-year OBG flat to BTPs at the end of August.A BBVA trade would follow a tap for Banco Popular which sold a EUR150m increase of a September 2015 deal via RBS and Societe Generale. The deal priced at mid-swaps plus 270bp.The tap was sold “under the radar”, was priced very aggressively (recently bid at plus 286bp in the secondary market), and is likely to be have been sold to domestic accounts.

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