France

The covered bond primary market lived up to supply expectations on Monday as two €1bn five year deals were priced amid talk of a further three to come on Tuesday. BNP Paribas showed the strength of its brand and the market by pricing the tightest French covered bond deal of the year.

The covered bonds of French issuers that are backed by relatively weaker collateral are trading at the tightest spreads, while French deals backed by higher quality collateral are trading at wider spreads, according to DZ Bank covered bond research.

There was strong secondary market interest in the long end of the peripheral market, and especially Italian bonds, on Thursday. In contrast, core covered bonds came under greater selling pressure, partly due to switching interest from Wednesday’s deals. The flows were counter-intuitive to the wider macro backdrop, where the flight to safety bid has resumed.

The public sector-owned French covered bond issuers, Caffil and La Banque Postale, returned to the covered bond market to issue two of the three 10 year deals seen this week. The deals were comfortably oversubscribed and provided exceptionally cheap funding for both issuers.

Compagnie de Financement Foncier no longer holds securitisations on its balance sheet, freeing it to issue benchmark deals that comply with the Capital Requirements Directive and will be repo eligible.

The year’s first batch of covered bond issues have been easily absorbed by a wide range of investors producing comfortably oversubscribed books. The first peripheral deal mandate has come from Portugal and another from Spain is expected shortly.

Four issuers from Finland, France, Australia and the UK are set to price covered bonds on Tuesday and Wednesday. Market conditions are broadly constructive, especially for higher yielding names, said bankers, but core issuers might have to offer concessions to tempt investors in a busy start to the year.

The European Commission has approved the orderly resolution of Crédit Immobilier de France (CIF), according to a statement on Wednesday.

Société Générale SFH returned to the covered bond market on Monday, after nine months away, to issue a €1bn deal due January 2021. It was only its second deal of the year, down from four deals in 2012. With covered bonds becoming increasingly rare, SG was able to attract a solid book from a wide dispersion of investors and price with a modest new issue premium.

BPCE SFH followed Commerzbank with a 10 year covered bond, but in contrast it offered a very attractive spread to mid-swaps and to OATs and looked set for an eye-catching 2.5% coupon. The deal was announced late in the morning, but it attracted vigorous demand even before the books were open

All bar one of France’s public sector covered bond programmes face downgrades after Standard & Poor’s cut the Republic of France by one notch from AA+ to AA, Crédit Agricole research said on Friday. However, French mortgage backed covered bonds should avoid any downgrades. In any case dealers were certain the impact would be negligible.

HSBC has returned to the covered bond market for the second time this year with a seven year deal which, like its earlier transaction, was notable for its breadth and depth of demand.