Moody’s upgraded 20 Spanish covered bond programmes yesterday (Thursday), raising their ratings by up to five notches and lifting the lowest rated out of junk territory, but an analyst cautioned that potential spread benefits might not be forthcoming during the wider market disruption.

The upgrades follow the assignment of Counterparty Risk (CR) assessments to the issuers, resulting in new covered bond anchors for the programmes that are higher than the previous ones. The covered bond anchors for the programmes are the CR assessment plus one notch.

The ratings of Catalunya Banc’s mortgage and public sector covered bonds were lifted into investment grade territory via five notch upgrades, going from Ba1 to A2, as was the mortgage programme of Banco CEISS. Abanca Corporación Bancaria’s mortgage covered bonds also moved into investment grade territory, being lifted from Ba2 to Baa3.

Five notches of upgrade were also given to the mortgage and public sector programmes of Banco Popular Español, taking their ratings from Baa1 to Aa2, and to the mortgage programme of Bankia, which went from Baa3 to A1. The full list of rating actions follows below.

Michael Spies, covered bond and SSA strategist at Citi, noted the upgrades mean Popular’s covered bonds should now qualify for 10% risk weight and Level 1 within LCRs, while the upgrades of Catalunya Banc covered bonds should reduce the risk weight to 20% and make them Level 2A eligible.

The upgrades of Bankia’s and CaixaBank’s programmes will not change their regulatory treatment for bank treasuries, as there is no change under the 2nd best rating approach, he added, although CaixaBank’s programme would under Solvency II face lower capital charges.

Spies said that while theoretically such upgrades should have a positive impact on the spreads of bonds issued from the affected programmes, he expected the implications to be relatively limited at this stage.

“Wider event risks currently dominate spread movements on the one hand,” he said. “On the other hand, the rating actions happened in particular in markets where sovereign bonds are trading substantially cheaper than covered bonds. “Hence, switching action from sovereign bonds into such rich trading covered bonds, driven by the rating actions, should be limited.

“Only in the case of a serious market disruption in peripheral markets, leading to sovereign debt turmoil – as during the sovereign debt crisis – would we expect covered bonds to once again be the collateralised alternative in peripheral fixed income markets.”

The full list of Moody’s upgrades is:

- Abanca Corporación Bancaria: mortgage covered bonds upgraded from Ba2 to Baa3, with a B2 CR

- Banca March: mortgage covered bonds upgraded from A1 to Aa2 with a Baa1 CR

- Banco CEISS: covered bonds upgraded from Ba1 to A2, CR unpublished

- Banco Popular Español: mortgage and public sector covered bonds upgraded from Baa1 to Aa2, with a Baa3 CR

- Banco Sabadell: mortgage and public sector covered bonds upgraded from A3 to Aa2, with a Baa3 CR

- Bankia: mortgage covered bonds upgraded from Baa3 to A1, with a Ba1 CR

- CaixaBank: mortgage and public sector covered bonds upgraded from A1 to Aa2, with a Baa1 CR

- Cajasur Banco: mortgage covered bonds upgraded from Baa1 to A1, CR unpublished

- Caja Rural de Navarra: mortgage covered bonds upgraded from A1 to Aa2, with a Baa1 CR

- Catalunya Banc: mortgage and public sector covered bonds upgraded from Ba1 to A2, with a Ba2 CR

- Colonya Caixa d’Estalvis de Pollença: covered bonds upgraded from A3 to Aa2, CR unpublished

- Ibercaja Banco Mortgage: covered bonds upgraded from Baa1 to A3, with a Ba3 CR

- Kutxabank: covered bonds upgraded from A2 to Aa2, with a Baa3 CR

- Liberbank: mortgage covered bonds upgraded from Baa3 to A2, with a Ba2 CR

- Unicaja Banco: mortgage and public sector covered bonds upgraded from Baa1 to A1, with a Ba1 CR