Spanish covered bonds have outperformed Spanish government debt amid volatility at the start of this week, confirming in the eyes of bankers that the country has successfully managed to keep its distance from the problems plaguing Greece, Ireland and Portugal.

A covered bond trader said that markets were characterised by volatility and thin volumes.

“Covered bonds are holding up pretty well,” he said, “in spite of the sovereign moves. Peripheral covered bonds have held in very well, tightening versus their respective sovereigns.”

Covered bond bankers said that Spain continues to enjoy being delinked from the problems of Greece, Ireland and Portugal.

One said that although cédulas were trading wider, they were only doing so as part of a weakness across financial institutions asset classes rather than because Spain was being dragged into the peripheral worries.

“The strongest indication that Spain remains delinked is in the relative performance of cédulas versus the underlying government,” he said. “Spanish government bonds are 40bp-50bp wider versus mid-swaps compared with the end of last week, but cédulas have just widened 10bp-15bp alongside a lot of other covered bonds.

“A key sign of covered bonds being caught up in the peripheral crisis has been that they follow their sovereign wider basis point by basis point, and then struggle to come back in when the government tightens. That isn’t happening with Spain and that shows that cédulas are trading according to their own relative supply/demand dynamics and their own strengths and weaknesses.”

And a syndicate official suggested that any cédulas widening this week was just down to them being a victim of their own success.

“Spain has performed so massively in the past couple of months,” he said. “We now have a quieter period where markets are more nervous, so it is not really surprising if we see a little correction of cédulas performance.

“They maybe just moved too far too fast.”

However, another banker suggested that it was too early to yet declare that cédulas were not so correlated with their underlying sovereign debt.

“Cédulas have outperformed government bonds,” he said, “but we have to remember there’s a lag.”

Meanwhile, syndicate officials said that Standard & Poor’s decision to change the outlook on US sovereign debt to negative yesterday (Monday) would only likely have political ramifications, even if it did not help sentiment in the short term, having contributed to a fall in equities.

“What S&P published was nothing that provided any news,” said one. “We all know that the US is spending too much. What was surprising was that a credit rating agency was acknowledging this.

“It’s a move that’s more seen as an appeal to the US government to tackle their fiscal problems.”

The probability of new issuance this week was nevertheless seen as small.

“The secondary market is crapping out, underlying government bonds are crapping out, and equities had a horrible day yesterday,” said a banker. “But we should be grateful that this is happening in the week before Easter when liquidity would have been light anyway and after such a huge first quarter, so that issuers and investors can both afford to stay on the sidelines.”