France

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.

With as many as three benchmarks pricing in different time zones and currencies in the last 48 hours, it is evident that the covered bond sector has evolved from its parochial roots to a truly global market. However as far as the Eurozone is concerned, issuance has been pitiful. This is in part owed to the cheap three year financing provided by the ECB, but also because many issuers are in blackout. As a result there are few offers and spreads look set to tighten.

Covered bond spreads have survived sweeping sovereign downgrades by Standard & Poor’s on Friday. Only French issuer Dexia was reported wider on Monday morning, while the LTRO cash injection has ensured short dated Spanish and French paper remains highly sought after.

Covered bond supply was restricted to an impressive €850m tap from BPCE on Thursday, taking the number of long dated French transactions already this year to six.

A series of mandates from outside the eurozone hit screens on Friday. Australian, New Zealand and Norwegian issuers could all launch in the next two weeks, while three Turkish banks have hired UniCredit Menkul Degerler for trades in 2012.

Syndicate bankers had expected Thursday’s ECB meeting to curtail supply, but BPCE has courageously squeezed through the funding window with a competitively priced €850m 10-year tap.

As a result of deal announcements and the new issue premium, secondary market turnover has been hit, with spreads moving on little volume. Curves have conspicuously steepened in France but DexMA remains out of line.