France

Banco Espirito Santo’s outstanding covered bond is bid only, and though little flow has been reported, dealers believe the offer is likely to be as much as 100bp tighter. In other news, Caffil’s bonds have performed well over the past month, outperforming the rest of the jurisdiction, partly driven by a new French law that limits the firm's litigation exposure by €66m which will considerably reduce the probability of a covered bond payment disruption.

Banca Monte dei Paschi di Siena’s (MPS) covered bonds’ outperformed the market on Monday after Moody’s upgraded them from Ba1 to Baa3 following the European close on Friday. The new rating more than halves the capital charge as the bonds move into investment grade territory, opening up demand to a much larger investor base. This swell of new interest should ensure that MPS outperforms the market over the summer.

BPCE, Muenchener Hypothekenbank and Belfius Bank all launched 10 year covered bonds on Monday, underscoring the impression that investors are confident European yields could keep heading lower. Where once long end demand was dominated by real money, banks are now more dominant, a change that has been driven by the improved status of covered bonds in the liquidity coverage ratio.

Cristina Costa has joined Société Générale as senior covered bond analyst.

After issuing its second covered bond of the year on Tuesday, Crédit Foncier de France is set to return to the capital markets and fund its residential mortgages with an RMBS, the first sale of the product from France since 2006. But in contrast to covered bonds, the RMBS is driven by capital considerations with the leads confirming that the issuer intends to place all of the subordinated notes.

Compagnie de Financement Foncier (CFF) came to market with its second Obligation Foncière of the year on Tuesday, matching the March deal’s €1bn size but this time opting for a 10 year, rather than five year, tenor.

The new Banque de France SME funding vehicle could be used for ECB quantitative easing, says BBVA. The Spanish bank’s research team say that, given the ECB’s new readiness to fund SME assets through QE, the Banque de France programme could be the ideal vehicle to channel these funds.

Société Générale returned to the covered bond market on Tuesday after a four month absence to issue the sixth French covered bond deal of the year and the third from France with a 10 year maturity. By limiting the deal size, leads were able to price flat to its curve, and with barely any premium to the French government.

Caisse Francaise de Financement Local (Caffil) mandated and priced a €500m tap of its October 2028 on Wednesday. The benchmark sized increase, which doubled the size of the transaction, was driven by reverse enquiry, and despite lopping a quarter off the spread versus where original deal came, it was comfortably oversubscribed with high quality real money demand.

Compagnie de Financement Foncier (CFF) returned to the covered bond market for the first time in over a year on Tuesday, with its newly restructured collateral pool, to issue a €1bn five year Obligations Foncières. The textbook syndication attracted a high quality book and, despite being tight to the issuer’s curve, offered good relative value, as well as benefitting from scarcity value given CFF’s long absence.

When General Electric issued a debut $500m sukuk five years ago it did not receive a great deal of acclaim. But with the company considering another potential Islamic deal later this year, neither it nor other rumoured Western first time borrowers such as Total should fear for a bad result this time around.

Primary market activity picked up on Wednesday as France’s BPCE took advantage of secondary demand at the long end of the French curve to tap its November 2023 issue by €500m taking the deal size to €1bn. After issuing a deal in December, the National Bank of Canada has returned to mandate the same group of leads as its previous deal for a European roadshow.