Covered bond bankers said that Eu529.5bn of orders from 800 banks in the second European Central Bank three year longer term refinancing operation today (Wednesday) had little immediate effect on the market, but that Spanish issuance might now be considered.

Barclays Capital analysts noted that the take-up was higher than in the December LTRO, when Eu489.2bn was borrowed, and there many more bidders, with 492 banks having participated in December.

“While the allotment is higher than the consensus of around Eu470bn, that sort of difference is not very meaningful given the uncertainties around these estimates,” said the Barclays analysts, adding that most market expectations were roughly between Eu300bn and Eu600bn.

RBS analysts said yesterday that a higher participation and net liquidity number than last time would likely come as a positive surprise and would add to the still positive market environment, at least in the short time.

However, they reiterated a cautious stance on the sustainability of the current rally as they said that negative fundamentals will resurface and solvency risk, like asset quality, will continue to play a major role since the sovereign debt crisis in the euro-zone is still far from being resolved.

Covered bond market bankers said that the market was unmoved by the results of the LTRO. One noted that Bund futures had not moved.

“The reaction is relatively muted,” he said, “but it will take time for the market to digest.”

Noting that the total was slightly above expectations, a syndicate official nevertheless said that the market could improve with the LTRO out of the way.

“The new cash thrown into the market is likely to be positive,” he said. “Although I don’t see any change in the market, I do think we will see more cash chasing deals.”

He said the pipeline does not feel particularly full, aside from an expected Bankinter new issue project and roadshows from ING-DiBa and Yorkshire Building Society due to finish this week.

Another syndicate banker said a Spanish issuer would be a candidate for issuance, and would probably monitor how a Banco CAM government guaranteed deal in the market today.

“We’ll have to see how that goes first,” he said.

Canadian Caisse Centrale Desjardins du Québec issued a $1.5bn five year benchmark at 77.2bp over Treasuries yesterday via leads Barclays, BNP Paribas, Citigroup, Morgan Stanley and RBS. The spread over mid-swaps was 51bp.

The Covered Bond Report understands that $2.4bn of orders were placed for the deal. A syndicate official away from the leads put the deal 10bp-15bp wider than outstanding deals for other Canadian issuers.