France

Caisse de Refinancement de l'Habitat is poised to price a €1.4bn 12-year deal at the tight end of mid-swaps plus 120bp-125bp spread guidance. With a book in the region of €1.6bn, supported by robust Nordic, German and UK demand, the deal is a strong endorsement of the French banking system. Though there is doubt over whether other French issuers will follow its lead, the market is clearly there for the right name at the right price — as today’s DNB Nor Boligkreditt’s mandate announcement illustrated.

Traders reported muted flows in the secondary market on Wednesday ahead of Thursday’s ECB meeting, amid intense speculation that another round of covered bond purchasing could be announced. Italian bonds have reacted remarkably stoically to the republic’s triple notch downgrade — although this might be due to the absence of bids for second tier institutions.

With the covered bond market waiting for constructive news out of Thursday’s ECB meeting, primary activity on Wednesday was limited to a €200m tap of Crédit Agricole’s 2021s. Syndicates said the tap showed investors were not totally sidelined, but the market — like other asset classes — was in desperate need of a message that would restore confidence and allow new issuance to be absorbed in the secondary market without provoking a sell-off in outstanding bonds.

Hopes of primary market supply evaporated on Tuesday morning as global equity markets dropped and European iTraxx indices and peripheral CDS widened further. In the secondary market activity focused on the embattled Dexia Municipal Agency, with its spreads widening 20bp across the curve. Dexia’s triple-A covered bond rating is under threat, though talk of its parent bank being placed into joint venture with French entities Banque Postale and Caisse des Dépôts et Consignations could bode well for its covered bonds.

After being among the main beneficiaries of tightening secondary spreads last week, Dexia’s outstanding paper pushed out again on Monday. The group’s share price dropped sharply after Moody’s placed the ratings of Dexia’s three main operating entities on negative review. The agency is concerned about Dexia’s access to short term funding and the increase in the amount of collateral the institution is having to use to hedge derivatives.

Covered bond market participants are firmly focused on Thursday, when the ECB could announce another round of covered bond buying. Regardless of market conditions, a deal on Monday was always going to be unlikely because of German holidays. But the weak market opening has made a deal between now and the ECB meeting more tricky — particularly for the smaller names that dominate the pipeline. Covered bond traders reported a very quiet morning, with customers unwilling to take a position before Thursday.

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.