Portugal

The positive market backdrop has driven smaller and less well-known bank issuers to come forward with rare new bond issues. But they are showing up just as investors pack up for the year, meaning they must work hard to lure enough demand, writes David Freitas.

Investors have embraced the bonds of smaller European financial institutions this year, as they search for higher returns in an environment where interest rates are expected to remain low for a long time.

Caixa Económica Montepio Geral was able to tighten pricing for a five year conditional passthrough covered bond, issued on Thursday, by an extraordinary 17bp from the initial level, causing rival bankers to question why it had been necessary to start with what was called a preposterously tight 2bp spread range.

Caixa Economica Montepio Geral (Montepio) mandated leads for the second Portuguese covered bond of the year on Tuesday, and NordLB Luxembourg has signaled its intention to press ahead with its debut renewable energy covered bond following a roadshow.

Portuguese banks are preparing to build towards their minimum requirements for own funds and eligible liabilities (MREL), having been lifted by an encouraging year in terms of non-performing loan disposals and by a strong performance in the domestic economy.

Bank capital securities have enjoyed a tremendous performance in 2019, leaving specialist fund managers a little nervous about protecting their returns as the year draws to a close.

Fitch Ratings said on Monday that it expected Portuguese banks would issue up to €9bn of senior debt for the minimum requirements for own funds and eligible liabilities (MREL) in the coming years, as they work concurrently on cleaning up the asset sides of their balance sheets.

Banco Comercial Português found room to launch a new tier two instrument in the euro market on Friday, raising €450m with its second subordinated bond offering of the year.

A ratings boost for Portugal could alert the country's covered bond issuers to the chance to print more, with the asset class at historically tight spreads.

Analysts at Danske Bank have said that Moody's could raise Portugal's credit rating this week even, amid signs of a weakening European economy. Such a move would have a knock-on impact for the country's banking industry, which has shown clear progress in improving its asset quality.

The autonomous region of Azores mandated two banks on Thursday for its first visit to the debt capital markets since 2016 and what could be its largest ever bond.

Portugal has announced its funding auction plans for the third quarter of the year, with syndicated debt sales also due to be part of the funding mix.