France

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.

Moody’s placed Société Générale (Aa2), Crédit Agricole (Aa1) and BNP Paribas (Aa2) on review for possible downgrade on Wednesday, because of their exposure to the Greek private sector and government debt, and a potential inconsistency between the impact of a possible Greek default or restructuring and the banks’ higher rating levels.

The covered bond market was quiet on Thursday, though syndicate officials said there were several borrowers that would like to complete trades before the summer lull. Prospective issuers have ample reasons to wait given that a resolution of the situation in Greece appears elusive. However issuers in the UK, New Zealand and Germany will have finished roadshows by the week’s end, and Italian and French names are monitoring the market.

Sampo Housing Loan Bank sold a Eu1bn 10 year transaction on Tuesday, which despite high credit and cover pool quality priced at the wide end of guidance. Syndicate officials pointed to a rise in rates and general aversion to risk among investors as two factors that held the transaction back.

While Finland dominated the primary market on Tuesday, pressure on peripheral names was still the story in the secondary. Italian borrowers are lining up, with a trio of issuers said to be monitoring the market, though a difficult backdrop may mean postponement until next week.

Demand from insurance companies and pension funds for covered bonds has increased this year, according to Barclays research, while interest from central banks and asset managers has fallen. Germany and Austria are the only regions where overall investor interest for covered bonds has decreased noticeably, though in some jurisdictions investors have participated far less in issuance from certain countries.

Westpac New Zealand became the second ever Kiwi bank to issue a euro covered bond when it priced a Eu1bn five year deal on Thursday. Fund managers and central banks snapped up the paper, seeing good value relative to core issuers, and took the opportunity to make investments away from European volatility. Investors will be eagerly anticipating further issuance out of New Zealand, with ANZ NZ next in the pipeline.