Covered Bonds

Crédit Agricole tapped its 20 year covered bond on Monday at a spread that was almost twice as tight compared to OATs as the original issue. The success of the tap shows that the German insurance firms that bought the increase are focused on other metrics than the cost compared to government bonds.

Almost two years after Moody’s and Fitch changed their rating criteria to take account of the Bank Resolution and Recovery Directive, Standard & Poor’s has set out how it plans to build resolution regimes into its ratings.

The relentless rise in French government bond yields this year has started to disrupt demand for French covered bonds, a trend which will hold until at least May when the country’s presidential elections are over.

Following the publication of primary covered bond legislation two years ago, Brazil’s central bank this week launched a public consultation on draft secondary covered bond legislation.

Deutsche Pfandbriefbank (PBB) eschewed cheap four year financing provided by the European Central Bank (ECB) under its long term refinancing facility to issue a 4.5 year Pfandbrief on Wednesday. The short and rarely issued tenor was easily absorbed and offered almost 52bp more than Bunds, in contrast to a French covered bond issued on Tuesday.

After a fantastic start to the year the FIG market has remained accommodative to borrowers and trades of all shapes and sizes, with a natural slowdown during blackout periods helping to quell any signs of indigestion.

Fondo de Amortización del Déficit Eléctrico (FADE) was warmly welcomed by capital markets on Tuesday for its first benchmark in 18 months, while Asian Development Bank hit screens looking for its first syndicated euro deal in almost three years. HSH Finanzfonds also raised cash on Tuesday.

Crédit Mutuel CIC on Tuesday became the first French covered bond borrower to begin and finish pricing at a spread that was markedly through OATs in this part of the curve, but the deal was a smaller size than expected.

Some €26bn was issued in euro covered bonds in January, about 20% of 2017’s expected annual supply. That proportion is consistent with 2016, and suggests February and March will also be busy.

This week’s three piece covered bond issue from Crédit Agricole showed considerable demand for long dated covered bonds. Though rates volatility and relative value may have deterred some investors, the high outright yield was simply too attractive for many to ignore.

Renewed appetite in the long end of the curve allowed Crédit Agricole Home Loan SFH to add a rare benchmark 20 year covered bond to an offering of eight and 15 year notes on Wednesday, as the French lender walked away with a healthy €2.5bn of funding.

FIG investors can expect the first round of post-earnings announcement deals in forthcoming sessions, though they have not been left wanting even at the height of blackout season.