France

The covered bond market has started to lose some of the energy and excitement that followed the announcement of the European Central Bank’s purchase programme. As the bid for Santander’s Cédulas widened the day after launch on Thursday, BPCE issued a finely tuned deal that was sized closely to demand.

The European Central Bank's covered bond purchase programme (CBPP3) turned relative value upside down this week, with a French deal pricing inside a similar Swedish offering, among a crop of four new issues.

BNP Paribas became the first issuer to print a French sub-Euribor ten year on Tuesday, hot on the heels of Monday’s sub-Euribor seven year from CFF. Europe’s second largest bank skipped initial price thoughts on the triple-A deal and had the syndication wrapped up by 10:30 CET.

On Tuesday Unione di Banche Italiane (UBI Banca) priced a €1bn ten year deal a full 10bp through where its outstanding ten year print from January was trading the previous day. The spread came sharply tighter through the execution process, helped by an early order from the ECB.

Compagnie de Financement Fonciere (CFF) priced this year’s first sub-Euribor seven year euro deal on Monday. At 5bp through mid-swaps, the issuer matched the price it obtained for its smaller, but extremely well received, five year print in September. Given the issuer has already completed its funding for 2014, Monday’s €1.5bn trade represents a significant contribution to the French issuer’s 2015 funding requirement.

Banco Sabadell returned to the covered bond market for the first time since January 2013 to launch a seven year Cedulas Hipotecarias which priced in line with Credito Emiliano's earlier deal of the same tenor. The deal was less reliant on demand from official institutions than Emiliano and will send a strong message to other peripheral issuers that may be looking to refinance liquidity borrowed under the long term refinancing operation.

Electricité de France and Amundi are forming an unusual asset management joint venture, in some ways similar to a private equity firm, to channel investment into low carbon energy.

The national central banks of France, Portugal and Spain were reported buying covered bonds issued by banks from their own jurisdictions on Monday, said dealers. The amounts were small and the purchases were price sensitive, they added. Offers in Banca Monte Paschi Siena’s covered bonds were unchanged as its shares came under pressure following reports it may need to raise €1.7bn in fresh capital.

On Friday Fitch put the AA+ rated covered bond programmes of Caffil and CoFF, and the public sector programme of BNP Paribas, on rating watch negative (RWN), following an identical action on the French sovereign earlier last week.

La Caisse Centrale Desjardins du Quebec (CCDQ) was back in the euro market on Wednesday with its second five year legislative covered bond of 2014, this time achieving a solid book and pricing at the tight end of guidance. The positive result was in contrast to its disappointing inaugural deal in March. Wednesday’s deal was priced at an expected 2bp pick-up over the stronger Canadian Imperial Bank of Canada’s (CIBC’s) five year trade last Wednesday.

The covered bond market passed another milestone this week with core transactions attracting book sizes that were reminiscent of the yieldy peripheral deals seen a year ago, but at spreads well through swaps. With supply likely to slow after September, the European Central Bank ready to absorb a large portion of whatever is subsequently issued and sovereign yields expected to head further into negative territory, the technical squeeze will become much tighter.

The frenzy of demand for Compagnie de Financement Foncier’s (CFF) five year deal on Tuesday demonstrated that the market’s psychological resistance to sub-Euribor pricing has well and truly crumbled.