France

Long dated paper continued to prove popular in the covered bond market on Tuesday morning, with Caisse de Refinancement de l’Habitat (CRH) opening books on a 10 year deal, becoming the first French bank to issue since the market re-opened last Wednesday. Austria’s Erste Group Bank also tested investor appetite for a seven year trade.

Despite a meeting of the world’s central bankers at Jackson Hole Nordea Bank Finland kept the primary market alive on Friday, launching a successful €1.5bn five year deal. Syndicate officials welcomed three consecutive days of primary supply, though market conditions have deteriorated since a trio of well received benchmark trades on Thursday. Secondary liquidity still leaves much to be desired, they said, and has not been helped by the attractive premiums offered by the latest issues.

Prospective buyers of peripheral paper are waiting for imminent Spanish and Italian auctions to indicate market sentiment, said syndicate officials. Meanwhile the covered bond market would benefit from more attention to credit fundamentals, as opposed to an exclusive focus on underlying government bonds, said Morgan Stanley analysts.

Covered bond traders and syndicates warned against premature optimism during the relative calm at the start of this week, and it turns out those warnings were apt. But syndicate officials have not given up hope of issuance in the next few weeks even though the possible candidates to reopen the market are down to a select few from Germany, the Nordics and the Netherlands — and those with credit lines to US investors are now even better placed.

The pipeline for issuance continued to build on Thursday, with Austrian, Nordic, and French borrowers scheduling investor meetings ahead of planned transactions. Though all prospective trades are in euros, syndicate officials said it could be a dollar trade that reopens the market.

The focus of attention is on plunging stock markets, a falling Bund yield, worse than expected German growth and a meeting between President Sarkozy and Chancellor Merkel. Well received SSA issuance should bode well for a German or Nordic covered bond reopener but many have their doubts. Nykredit is on the road in Asia, but it’s strictly non-deal related.

After a week of severe fluctuations in all market segments, traders said Monday morning was the quietest day in weeks. Market participants are hoping for a modicum of stability to improve the chances of primary supply at the end of the month and several issuers from core jurisdictions are finalising roadshows in order to come to market, syndicate bankers said. But if new issue premiums are at the top end of expectations, they added, it will reshape the secondary curve — and this may deter some names from returning.

French covered bonds have widened in the secondary market following concern that the sovereign could lose its triple-A rating. Meanwhile traders reported buying in Spanish and Italian covered bonds as investors move out of government paper.

Core European investors are much more pessimistic than two months ago, according to Crédit Agricole’s latest sentiment index, which showed an even greater decline in issuer sentiment. Investors expect further deterioration in Spanish and Italian covered bonds, but at a slower rate than over the last two months.

OTP Mortgage Bank priced a €750m floating rate covered bond on Wednesday, but the market is not sure what to make of the trade, which was driven by a substantial reverse enquiry and for which statistics on allocation were withheld.

Peripheral sovereign bonds are once again heading towards their recent widest spread levels but covered bonds, as usual, are lagging the move. Real money buying of peripheral covered bonds has been at levels 60bp through the government in some cases. Volumes are small, however, and bid offer spreads are wide as concerns around volatility continue to weigh in on sentiment.

After digesting the details of a rescue plan for Greece, traders have marked back Spanish and Italian sovereign debt following a brief relief rally on Friday. Secondary market activity was subdued on Monday, and though covered bond spreads have lagged sovereign tightening, making them look relatively cheap, traders said it was never enough to be market moving.