France

BPCE made its debut in the offshore renminbi market on Wednesday, pricing a 10 year non call five tier two bond. The French lender joined a series of non-Chinese banks that have tapped the dim sum bond market to beef up their Basel III tier two capital buffers.

Swedbank and HSBC both issued €1bn euro-denominated seven year covered bonds on Wednesday. The slim pricing differential between the two transactions neatly illustrated that covered bonds not eligible for the European Central Bank’s purchasing programme have caught up with those that are.

Société Générale SFH issued a €500m five year Obligations de Financement de l’Habitat on Wednesday, at the tightest ever spread for a non-German issuer. The transaction was comfortably oversubscribed, and with investors increasingly alert to the risk of thin covered bond supply, the issuer paid virtually no new issue premium.

Compagnie de Financement Foncier (CFF) priced the tightest and lowest yielding euro benchmark covered bond from a non-German issuer on Tuesday. The strong result is a testimony to the return of relative value and shows that, despite the historically low absolute yield, investors are desperate for covered bonds which are structurally under-supplied, but for which there is a durable regulatory bid.

The public sector French covered bond issuer, Caisse Française de Financement Local, announced on Friday that by the second quarter 2015 it will be able to add export loan collateral guaranteed by the French credit agency, Coface, to its covered bond collateral pool.

BPCE has harnessed the most highly oversubscribed book of the year for its covered bond debut of 2014. The French issuer and Belfius Bank, which both launched deals on Tuesday morning, have benefitted from the sovereign bond market’s rally which has restored relative value in core covered bond markets and brought back demand from triple A rates investors.

Leeds Building Society has priced a £300m three year floating rate covered bond on Monday, as Belfius Bank and BPCE mandated leads respectively for 10 and seven year deals. The primary activity comes as Nordic issuers emerge from blackout, and amid talk that a Swedish 10 year deal could soon surface.

The larger than expected quantitative easing programme announced by the European Central Bank on Thursday has turbo-charged the well-established bull flattening trend in covered bonds and trading volumes have tripled from earlier in the week. With the long end of French market now offering a tempting spread to OATs, real money buyers are set to return. And with Bonos and BTPs rallying hard, relative value between covered bonds and sovereigns should soon be restored in the Cédulas and Obbligazioni Bancarie Garantite markets.

Covered bond issuers from outside the Eurozone launched deals this week denominated in sterling and Australian dollars. But a bigger proportion were from the Eurozone where borrowers launched deals in the single currency in maturities that ranged from four to 20 years. The transaction were priced generously and enjoyed a solid reception, with central banks taking a back seat.

Bank of Montreal (BMO) and Caisse Française de Financement Local (Caffil) respectively issued one of the shortest and longest covered bonds of 2015. BMO’s five year appealed to a wide audience enabling the borrower to issue a large €1.5bn deal. Though Caffil’s €500m 20 year appealed to a smaller audience, the very high quality investor base it appeals to bodes well for the deal’s long term performance.

The European covered bond market kept up its momentum on Tuesday as four euro-denominated deals hit the screens and books were opened on another denominated in Australian dollars. The euro deals all offered a new issue concession of around 5bp and were comfortably oversubscribed.

The European covered bond market got off to an exceptionally strong start on Monday as LBBW, Compagnie de Financement Foncier (CFF) and BBVA launched euro benchmarks across a range of maturities, without a hiccough. The strong start bodes well for Tuesday when several more euro benchmarks including Bank of Ireland and BPER are due.