Spanish Banks Selling Bonds Give Buyers Alternatives to Germany

Banco Espanol de Credito SA, a unit of Spain’s biggest lender, and Banco Sabadell SA are selling their first benchmark covered bonds in seven months as investors seek higher-yielding alternatives to German bank debt.

Banesto, as the Banco Santander SA (SAN) unit is known, offered the secured notes due in 2017 at a yield of 395 basis points above the swap rate, according to a banker familiar with the deal. Sabadell, the second-biggest commercial bank in Spain’s Catalonia region, will market two-year bonds at a spread of 375 basis points, or 3.75 percentage points, tomorrow.

Bond sales spiked after the European Central Bank’s pledge last week to buy unlimited amounts of government bonds to cap weaker euro members’ borrowing costs. Even with the ECB program, some issuers are speculating that time is running out to raise money because of concerns over Greece’s ability to cut spending and a German court case about the euro bailout fund.

“Core covered bonds are at an all-time yield low, so investors that believe that the ECB support will work are in a search for yield,” said Bernd Volk, the head of covered bonds and agency research at Frankfurt-based Deutsche Bank AG. “On the sell side, if Spanish issuers don’t try to issue now it could be difficult later since the political situation can derail easily,” adding that he doesn’t expect this scenario.

An official at Banesto in Madrid confirmed the bond sale, which he said attracted 90 investors with about 80 percent of the debt going to non-Spanish buyers. A Sabadell official confirmed the plan to sell covered bonds.

Income Boost

Investors favor covered bonds because they’re backed by relatively safe revenue streams, usually mortgage payments or public-sector debt, and are rated higher than unsecured senior bonds from the same issuer. The yields offered by the Spanish banks are a welcome income boost for investors receiving an average 11 basis points more than swaps to hold three- to five- year German covered bonds, according to Bank of America Merrill Lynch EMU Pfandbriefe index.

The sales are part of a flood of issuance that saw U.S. biotechnology company Amgen Inc. join Renault SA and five Spanish borrowers to raise about 11 billion euros ($14 billion) today. That’s the busiest day for Europe’s bond market in 2 1/2 years, according to data compiled by Bloomberg.

To contact the reporter on this story: Esteban Duarte in Madrid at

To contact the editor responsible for this story: Paul Armstrong at

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