France

Borrowers from peripheral and core jurisdictions priced over Eu6bn worth of benchmark covered bonds across three currencies this week, which included inaugural deals from Italian and New Zealand issuers. Prospects for supply next week are similarly diverse, though volatility and European holidays may narrow the window for issuance.

Dealers report a strong bid in covered bonds this Wednesday morning, though some selling in the five to 10 year segment was welcomed as it helped cover shorts. Dexia Municipal Agency remains under pressure and with Bonos tightening, cédulas have underperformed, triggering some selling.

BNP Paribas priced its first public sector covered bond of the year on Tuesday, a well executed five year benchmark. The Eu1bn no grow trade was well oversubscribed, more bonds were placed with Asian accounts than domestic buyers, which a syndicate lead suggested was a first for French covered bonds.

After the activity and drama of the first part of the week, Ascension Day holidays across most of Europe have lent a quiet tone to the market and a more sedate close is anticipated. But with as many as five deals mandated and a few others rumoured, the pace is likely to pick up next week.

Crédit Agricole on Wednesday completed a Eu1.5bn seven year transaction, its third covered bond this year and its first under the new Obligations a l’Habitat framework. Despite French issuance topping Eu50bn so far in 2011, there are no signs yet of French credit lines being exhausted.

The covered bond primary market exploded into life on Tuesday with new developments on as many as eight deals — of which four or even five, are expected to price during the day. The constructive primary market is largely due to an improvement in underlying market sentiment.

Though the covered market was quiet on Friday, market participants can look back on highly successful week in which almost Eu7bn in euro benchmarks was issued. After faltering supply in April UniCredit analysts report that covered bonds are on track for another record month. Issuance thus far in May is almost Eu20bn, less than Eu2bn short of the record total supply for that month.

Caisse Refinancement de l’Habitat on Wednesday added to this week’s sequence of heavily oversubscribed issues from borrowers in core jurisdictions. The Eu1.25bn trade, which was priced through Barclays Capital, Crédit Agricole, HSBC, Natixis and Société Générale, was the second French long 10 year within a week, but investor demand for core paper is so buoyant that the order was still more than twice covered.

Benchmark issuance in the covered market continued for the third straight day on Wednesday, heralding a return to the form of early in the first quarter. Caisse de Refinancement de l’Habitat on Wednesday launched the second French long 10 year within a week, keeping books open for only half an hour for a Eu1.25bn trade.

Two European banks have issued benchmark dollar covered bonds this week, taking advantage of US investor interest in triple-A assets.

Issuance from Italy, the fastest growing euro covered bond segment, has this year already exceed by almost 20% the total amount sold from that jurisdiction in 2010, according to Natixis analysts.

Société Générale priced the second euro Obligations de financement de l’Habitat on Tuesday, at a level 20bp inside of BPCE’s debut OH with the same maturity in early May. Syndicate leads said a strong reception had been predicted following an in-depth roadshow the previous week, though others said the scale of demand for the debut deal had been surprising nonetheless.