France

The Greek parliament met market expectations yesterday and approved the austerity bill, ushering in a period of mild relief however temporary it turns out to be. Secondary market flows picked up, particularly for Spanish cédulas which showed stronger buying interest. But covered bond syndicate officials do not expect a long window for primary issuance. CRH and OP bank have been quick to take advantage of the more positive mood with the former raising Eu1bn of 11 year funding via a tap and the latter mandating leads for a seven year to be priced tomorrow.

Covered bond bankers expect the Greek parliament to approve austerity measures in today’s vote, but even if that happens, they do not expect much of a relief rally. If the measures are not approved then it’s likely that the consequences will be catastrophic.

All eyes are on the Greek vote this Wednesday and the start of the new quarter on Friday. Until then, the primary market is likely to be quiet. Aside from those issuers that have already mandated, there are rumours that two or three German borrowers are lining up to do dollar denominated benchmarks. The secondary market has seen some flow, and after recent heavy selling, interest has been more two way with some clients tentatively picking up cheap peripheral bonds and others tempted to pick up long dated core paper yielding over 4%.

The spotlight remains firmly on the Greek tragedy with bankers anxiously awaiting fresh developments in the hope that there may be some sort of reprieve. Issuers are well funded and can probably sit it out for now but the omens do not look promising. Bank traders say that selling pressure on the peripheral covered bond markets has continued unabated and, with many banks believed to be sitting on significant inventory, there is an increased risk of near term spread widening.

Deutsche Bank and Natixis have been mandated for Achmea Hypotheekbank’s new Dutch RMBS, Dutch Mortgage Portfolio Loans IX (DMPL IX), while BNP Paribas’s Phedina has priced.

Germany’s ING-DiBa kept primary supply alive on Wednesday, pricing one of the tightest five year covered bonds of the year. As an inaugural Pfandbrief, Eu500m in size and five years in maturity, the trade was never likely to struggle. Syndicate officials expect no further issuance this week, however, as few borrowers can bring deals which boast similarly attractive qualities.

Abbey, Compagnie de Financement Foncier (CFF), Dexia Kommunalbank AG, Erste Bank, La Caixa and UniCredit all made presentations to UK based investors at an event sponsored by Crédit Agricole CIB this week. Whilst it was clear that many issuers are well advanced in their funding for this year, and seem to have plenty of liquidity to draw on, it is also clear that when the funding window re-opens, issuance is likely to take-off.

Syndicate officials are expecting at least one covered bond trade on Wednesday morning, providing the outcome of a vote of confidence in the Greek parliament is positive. ING-DiBa remains the best hope for issuance this week, though a French name could also make an appearance.

Guaranteed residential home loans used as collateral for French Obligation à l’Habitat could be riskier assets than residential mortgages during a severe economic downturn, despite lower loss given default values.

The conversion of French structured covered bond programmes into the Obligation à l’Habitat (OH) format is causing confusion in the index world, said LBBW analysts. French iBoxx covered indices have become less representative of a clearly defined market segment, the research said, and iBoxx is currently discussing whether to create a new sub-index for the OHs.

BNP Paribas’s Dutch RMBS, Phedina 2011-1, was fully covered at Friday’s guidance of 90bp-95bp for the two year ‘A1’ tranche and 130bp-135bp for the five year ‘A2’ tranche, with more orders coming in on Monday morning.

The covered bond market remained inactive on Monday. Though several issuers have deals to bring, the environment has not become any more receptive to issuance. Fears of contagion from Greece rule out peripheral supply, and one syndicate official on a prospective trade from a core name said he had advised delay.