France

Crédit Mutuel CIC tapped the market for the second time this week on Friday, and Hungarian issuer OTP Mortgage Bank mandated banks for its first benchmark transaction in three years. Despite renewed volatility in the periphery, syndicate officials said the covered bond market could remain open for core issuance, given strong non-farm payroll data, and a conducive yield environment.

Though the covered bond market remained quiet on Thursday, syndicate officials stressed it had not yet closed for summer. Investors still have cash to put to work, and there is at least one trade expected next week. Negative rating action has damaged market sentiment, however, and closed the window for some peripheral names. Prospective issuers face a forbidding market and increased premiums should they decided to issue.

Crédit Mutuel CIC launched its debut Obligations à l'Habitat on Tuesday, taking supply in the new French format since last Friday to Eu3.8bn. The borrower managed to find a secure window for issuance in a market plagued by negative rating actions to print a benchmark deal in line with its own curve, and that of the wider French market.

The primary market has been dominated by core supply particularly weighted towards the long end, but a real test of tier two bank issuance, or tier one names from peripheral jurisdictions, has yet to be seen. The timing could be about right for UK, Spanish and Italian deals to enter the market.

LBBW sold its inaugural public mortgage backed transaction on Monday, the first borrower to bring a deal on a Monday morning since late March. A long awaited trade from Crédit Mutuel CIC Home Loan was also announced. Leads took indications of interest this morning for the borrower’s debut Obligations à l'Habitat, which follows BNP Paribas’ first euro outing in the OH format at the end of last week.

After more than a week without primary euro issuance, BNP Paribas and OP Mortgage Bank on Friday broke ranks and opened books on 10 a year and seven year deal respectively. BNP closed books on a well received Eu2bn transaction by mid-morning, while execution on OP’s Eu1bn no-grow deal was less straightforward.

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.