France

The euro primary market remained closed on Monday. The secondary market, however, has been more active, with liquidity present for both core and peripheral paper. Even Portuguese bonds have enjoyed interest, as fast money accounts salivate over double digit yields.

BNP Paribas has launched the first dollar covered bond index that includes non-SEC registered transactions, which make up nearly all of dollar denominated covered supply. But the French bank will need market interest to legitimise the decision to include bonds that are not allowed on other leading indices, according to market participants.

A senior DCM covered bond banker talks to The Cover about the market outlook for the next six weeks which, aside from the sovereign crisis, will also encompass legislative progress on bank resolution regimes, new developments on CRD 4 and how these might impact the covered bond market.

Insurance companies will increase their holdings of covered and government bonds, while reducing their allocation to equity and long term corporate bonds, according to a report from the Bank of International Settlements.

Investors have plenty of cash to put to work and there is scope for modest issuance next week if stable market conditions prevail but thereafter the funding window is expected to move to late August. In the secondary market, spreads are slightly wider but activity is mostly confined to price checking. Italian auctions went well, breeding a little confidence but overall conditions still remain nervous.

Dealers and investors remain shell shocked by recent events. Despite relatively upbeat comments from the buy side and a continuation of the spread correction, reported secondary activity has been muted. Syndicate bankers are looking towards stabilisation of the Bund/swap spread and do not rule out the prospect of issuance, though it may be limited to taps.

Secondary market dealers reported little trading activity on Tuesday and described the market as being dysfunctional. Despite that, some participants are trying to take advantage of this price opacity. After opening very weak, the market has bounced back on rumoured central bank intervention.

Hopes for further covered bond issuance have been dashed by peripheral volatility centring around Italy and poor US employment figures, which have weakened market sentiment across asset classes. Prospective issuers are electing to wait, and with holidays in core Europe fast approaching, benchmark supply appears unlikely.

Matej Chytil has joined Crédit Agricole’s covered bond trading team from National Bank of Slovakia. He is working on the Jumbo trading desk alongside Gavin Jackson and reports to Mariano Goldfischer who is head of trading at the firm.

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.