France

After two weeks without benchmark issuance market participants are looking past the UK royal wedding and May Day holiday to a resumption of primary market activity on Tuesday. Syndicate officials were modest in their expectations however as, with peripheral markets effectively closed and some core names in blackout, prospective issuance from for core jurisdictions appears sparse.

Secondary trading has picked up pace in light of limited primary issuance. An attractive rates environment has ensured continued demand for long dated French paper, while selling has increased in peripheral covered bonds now flat to the government curve.

During the crisis, the Nordic covered bond market firmly established its credentials as an anchor of stability, with spreads holding firm and borrowers maintaining their access to the market. Since then, continued strong demand for exposure to the region has supported a further narrowing of spreads relative to other core European covered bonds. In the EuroWeek/Natixis Nordic covered bond roundtable, a number of leading issuers from the region discussed the underlying reasons for this strength, and the outlook for the market.

While Coventry Building Society is expected to bring an inaugural sterling deal this week, via leads BNP Paribas and Barclays Capital, the majority of regular issuers may decide to wait until after Easter.

Compagnie de Financement Foncier priced a difficult Eu1bn 10 year deal on Wednesday, with market participants divided as to why the deal struggled. The jumbo benchmark was priced in line with ambitious guidance, though the slow book build was unexpected in a market primed for long dated paper from a high quality French name.

The momentum around long dated core supply rumbles on, with Compagnie de Financement Foncier launching a Eu1bn 10 year benchmark deal on Wednesday. The deal comes amidst some talk that it was not the easiest sell and a continued widening of French paper relative to German. But with the outlook for France stable and a new law set to enhance structured deals, France’s dominance of the covered market looks unthreatened.

Crédit Mutuel Arkéa priced its second public jumbo covered bond on Wednesday, taking advantage of demand for duration. Although the borrower has only one deal outstanding, it is becoming increasingly well recognised. Investors are likely to have taken comfort from its intention to transfer to the new Sociétes de Financement de l’Habitat framework.

French, UK and German names were active on Wednesday, continuing the shift away from southern jurisdictions. Lloyds launched its second euro deal of the year and Nordea became the latest borrower to tap the dollar market. UniCredit ensured peripheral Europe was represented, mandating for a Eu500m tap of an outstanding 2017 trade.

The Netherlands NIBC Bank brought primary market activity to a close this week, launching an inaugural Eu500m three-year deal on Friday via leads LBBW, Natixis, and RBS, which priced the new issue at 105bp over mid swaps.

Axa Bank Europe sold its second ever covered bond on Tuesday, a tightly priced Eu500m five year deal.

AXA Bank Europe will price a Eu500m no grow issue at 63bp over mid-swaps later on Tuesday, via leads Bank of America Merrill Lynch, BNP Paribas, Crédit Agricole, HSBC, Natixis, and Société Générale.

The debate around cover pool transparency has once again reared its head after M&G Investments warned that “not all covered bonds are alike and while some are exceptionally strong, the opaque structure of many others could harbour unwelcome surprises for investors.”