Primary market activity in euros is expected to pick up next week ahead of the Easter holidays, with sentiment holding up in the face of bad news. Meanwhile, Abbey closed a £1.25bn deal yesterday (Thursday) that attracted £2.1bn of orders ahead of a Coventry Building Society debut.

Moody’s downgrades of Portuguese covered bonds this (Friday) morning (see separate story) came as little surprise, particularly in light of Portugal’s decision to seek a bail-out package. One banker said that Portuguese covered bonds traded in a 450bp-550bp over mid-swaps range, with the exception of Santander Totta, which he quoted in the low 300s.

A covered bond syndicate official said that although nothing has been officially announced in euros, he expects some benchmarks to be launched next week.

“The market looks great,” said a syndicate official. “No one is interested in Greece, Ireland, Portugal. Or Libya.

“Investors are cash rich and are more than happy to increase risk. All the negative news was priced in three weeks ago and all these major events are very isolated.”

Encouragingly, Spain has also remained immune from the problems of its neighbour, with cédulas spreads said to be holding up well and indeed tighter.

Abbey National Treasury Services attracted £2.1bn of orders to a £1.25bn 10 year Regulated Covered Bond yesterday, via leads Barclays Capital, BNP Paribas, Santander and UBS. Having gone out with guidance of 145bp-150bp over Gilts, the UK bank was able to achieve pricing at the tight end of the range, 145bp over.

A syndicate official at one of the leads said that the issue has tightened 3bp since pricing, and that Abbey’s outstanding, 2026 sterling issue had not been negatively impacted, being 1bp tighter than their 129bp bid level before the new issue was announced.

Almost 100 accounts participated in the issue.

“This was anchored by UK real money,” said the syndicate official, “but we also saw a good amount of European real money investors, insurance companies venturing into sterling.

“All in all it was a very strong story. The market can’t seem to have enough of this.”

Abbey’s 2026 issue has tightened some 30bp since launch in February, while a Lloyds TSB 2029 issue launched that month is 50bp tighter, according to the banker. Abbey’s new 10 year issue was the first sterling 10 year benchmark this year and, coming after a seven year Yorkshire Building Society deal on Tuesday, filled out the sterling curve further. Leeds Building Society issued a £250m 10 year in November.

“There was previously a belief that sterling covered bonds would have to be long dated,” said the syndicate official, “but these deals show that there is a bid across the spectrum.”

Coventry Building Society is expected with a sterling debut next week, via Barclays Capital and BNP Paribas, and is understood to be targeting a seven to 10 year deal.