France

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.

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.