Portugal

Italy’s borrowing costs dropped across the curve at an auction on Friday, although its yields at the longer end are still some distance from the euro-era lows hit earlier this year.

The Euromoney Smaller European Companies Index Series currently comprises 1350 companies across 16 European countries.

A European sovereign debt management office is mulling a return to dollars before year end to build its curve in the currency — after ending a four year absence from the market in July 2014.

Portugal attracted more than €5.5bn of demand for the first syndicated deal from a peripheral sovereign since mid-June on Wednesday.

Portuguese paper maker Portucel Soporcel on Monday said in a notice filed with the Luxembourg exchange that it will offer, in September, its second high yield bond to repay part of its 2013 notes.

Portugal’s short term borrowing costs dipped back into negative territory on Wednesday for the first time since May, as the third Greek bail-out package swung into action and Ireland cancelled debt.

Portugal overshot its maximum target at a dual tranche auction on Thursday, and was also able to reduce its borrowing costs on the shorter of the two tenors on sale.

Spain’s three month borrowing costs dipped back into negative territory and to a record low on Tuesday, as the eurozone periphery enjoyed a strong run of trading before Portuguese auctions later this week.

Fitch published a peer review of five Portuguese covered bond programmes on Wednesday, rating them all in the BBB basket. Though the quality of the cover pools is high, as reflected by one of the lowest portfolio loss rates in Europe, the risk of a disruption to the flow of payments is also high.

Caixabank’s plans to acquire Banco BPI will damage the issuer’s solvency and Moody’s has put the issuer rating on negative watch. Though the rating of both its mortgage and public sector covered bonds will also be dragged down, planned changes to rating agency’s methodology should ultimately mean the ratings end up unchanged.

The larger than expected quantitative easing programme announced by the European Central Bank on Thursday has turbo-charged the well-established bull flattening trend in covered bonds and trading volumes have tripled from earlier in the week. With the long end of French market now offering a tempting spread to OATs, real money buyers are set to return. And with Bonos and BTPs rallying hard, relative value between covered bonds and sovereigns should soon be restored in the Cédulas and Obbligazioni Bancarie Garantite markets.

Portugal’s Caixa Geral de Depósitos (CGD) issued a €1bn seven year covered bond, the longest seen from any Portuguese issuer in four years. And at 1% it was also the lowest coupon ever paid by a Portuguese covered bond issuer. The comfortably oversubscribed deal offered a new issue premium of 3bp to 4bp. However, rival bankers said the spread looked unattractive relative to government bonds which are should benefit from prospective central bank buying.