France

In the first euro benchmark trade for four weeks, Crédit Mutuel Arkéa sold its inaugural public sector Obligations Foncières on Tuesday. Syndicate officials had not expected a French issuer to reopen benchmark supply, though demand from domestic insurance buyers has been evident recently.

Sentiment has clearly improved with two deals and one tap announced in the primary market, while bids have gingerly returned to the secondary market. However, investors, traders and syndicate bankers say the tone is skittish, leaving most feeling guarded.

German, French and UK issuers launched trades on Tuesday as indices tightened and stock markets rose on hopes that a solution to the eurozone debt crisis had been outlined over the weekend.

Secondary markets broadly remain under pressure, though there are cracks of light appearing here and there. The long end of the French market seems to be stabilising, there have been some buyers of Cédulas and there is still a smattering of interest in selective Scandinavian names. But the outlook remains dim and relative value against other sectors suggests covered bonds are expensive.

Although issuers in the pipeline remained in risk off mode on Wednesday, Caisse de Refinancement de l’Habitat provided some supply, tapping its February 2023. The tap was a rare bit of good news for the French market and suggested that there are investors looking for opportunities, despite the wider credit market volatility.

Crédit Mutuel-CIC Home Loan SFH kept the euro market alive on Tuesday with an increase of an outstanding 10 year trade. The €200m tap is the sum total of primary issuance in the last week, though Canadian Imperial Bank of Commerce proved the dollar segment’s resilience to market volatility by taking supply over the same period to $7bn.

Spreads on French bank paper have been unaffected by Moody’s downgrades, which had been widely anticipated.

Crédit Agricole CIB has hired Nicolas Poli as global head of SSA and covered bond trading from Bank of America Merrill Lynch where he had worked for three years as director of SSA and covered bond trading. He will aim to build the bank’s dollar denominated SSA and covered bond trading platform.

Markets opened poorly on Monday morning and hit record wides in some indices, after concerns about Greece’s ability to meet its austerity commitments dominated weekend headlines. Syndicate bankers touted Tuesday as the day to bring a deal if market conditions were constructive, but the volatility means they expect no primary supply this week.

Two weeks of pressure on French covered bond spreads in the secondary market have pushed Dexia Municipal Agency’s outstanding paper to new wides. In the last two days however, spreads have tightened moderately and settled up to 100bp wider than where they were before the market re-opened on August 25. Fortunately the bank has finished its long-term funding for the year, and even if spread levels make public issuance economically prohibitive, it has developed other funding tools. Covered bond analysts see value for investors in buying their bonds now.

The Cover provides a brief summary of the regular covered bond research notes produced by Deutsche Bank, Société Générale CIB, LBBW, Barclays Capital and DZ Bank. With the covered bond to senior unsecured spread having widened considerably in the recent past, one of the key focuses is on relative value, and in some cases senior is preferred over covered. A couple of houses also look at the Scandinavian region with one highlighting the risk of house price declines on high LTV pools in Denmark and Sweden. Finally, one house looks at rising Spanish NPLs and finds that this should not be a problem – provided there’s a €75bn recapitalisation.

Prospective issuers stayed out of the European covered bond market on Thursday, ahead of the afternoon ECB interest rate announcement and press conference in Frankfurt. A deal is highly unlikely on Friday, which means the week will probably end without any European supply at all. Looking ahead, Norway’s Terra Boligkreditt finished its roadshow on Wednesday and may be the prime candidate to resume euro supply early next week — as long as weekend headlines don’t spook markets.