France

The performance of cover pools has deteriorated, Crédit Agricole research has found after examining Moody’s, Standard & Poor’s and Fitch’s data. But this is not because of worsening credit risk but rather because of market risk.

ANZ National built a benchmark sized orderbook for a €250m tap of its inaugural euro covered bond on Tuesday and priced the deal inside its outstanding curve. With some buyers sidelined due to a lack of a legislative framework in New Zealand, the strong reception bodes well for an issuer intending to launch yearly euro trades.

Caisse de Refinancement de l’Habitat launched a €1.75bn 12 year benchmark on Monday. Though this was its second long dated deal this year and the sixth such French benchmark this year, there has been no long euro benchmark issuance since February 1 and as such, the market was desperately in need of this paper.

The bullish market was again in evidence at the end of last week after CFF issued a €2bn August 2015 at mid-swaps plus 95bp on Friday. Though this was flat to its curve, the borrower attracted a €7bn book from about 270 investors.

Compagnie de Financement Foncier built one of the largest ever orderbooks for a French issuer on Friday, pricing a €2bn 3 1/2 year trade flat to its outstanding curve. Short end trades have flown regardless of name or jurisdiction, and syndicate banks said reverse enquiry for Italian borrowers has now started to build.

BPCE convinced more than 140 accounts to participate in the first French trade of 2012 not to tap the long end of the curve, with a huge bid from asset managers unable to buy short dated paper providing added granularity. The BPCE group has issued over €3bn so far this year — around 25% of its covered bond funding plan, though it aims to be active throughout the year.

BPCE launched the first French five year trade of 2012 on Monday, into a market still desperate for new supply across the curve.

The ECB's Long Term Refinancing Operation could increase the bid for covered bonds through its restorative effect on the senior unsecured market.

Bank of New Zealand returned to the market on Monday with a long three year benchmark, after postponing a five year trade earlier this month. The change of maturity and capped deal size yielded a far more positive result, with over 100 accounts contributing to the most oversubscribed order book of the year.

Barclays Capital’s new fiscal strength covered bond indices, which adjust the market value weighted exposure of country risk based on fiscal strength, have won the support of investors polled by The Cover.

The secondary market in covered bonds is in danger of breaking, and though it is not there yet, there are concerns over ‘forced delivery squeezes’ in the repo market which may lead to failed trades. Though it has always been the intention of the European Central Bank to improve liquidity, there are some who now say that it is not doing enough. Covered bonds could risk becoming almost like a private placement market if the current situation persists.

Issuers could hardly hope for a better backdrop to bring benchmark deals. Bond yields are falling and investors are looking to put cash to work across a swathe of asset classes to capitalise on the rally, as seen most emphatically in the senior unsecured market this week. Yet Norway’s Sparebank Vest Boligkreditt remains the only obvious candidate for a deal next week.