Tighter spreads on Spanish covered bonds have not appreciably mitigated the risk of holding this paper, according to Moody’s Investors Service in a special comment released today.

“Liquidity and funding pressures will continue to constrain banks’ credit profiles over the coming months because of the banks’ high reliance on wholesale funding,” the agency said. In addition, the financial pressure faced by the Spanish government can pass through to the creditworthiness of local covered bonds.

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