Crédit Mutuel-CIC Home Loan SFH has set up a Eu30bn US covered bond programme for 144A and Reg S issuance, with French covered bond spreads having narrowed the gap over tighter jurisdictions, according to bankers, but sentiment still biased against the country.

The base prospectus for CM-CIC’s programme is dated 20 September, with Citigroup named as arranger. Barclays, Banque Fédérative Crédit Mutuel, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley are dealers. Issuance off the programme is expected to be rated triple-A by Fitch, Moody’s, and Standard & Poor’s.

The Covered Bond Report was unable to reach the issuer for comment.

A deal is not expected imminently, with some form of marketing in advance of any transaction deemed sensible given that the issuer would be new to the US and with there having been no French dollar supply for some time.

French issuers have been absent from the US market since April 2011, when Crédit Agricole Home Loan SFH sold a $1.5bn three year benchmark. BNP Paribas Home Loan Covered Bonds and Compagnie de Financement Foncier (CFF) are the only other French issuers to have tapped the market since the beginning of last year.

Dollar covered bond spreads have performed very strongly over the past few months, according to syndicate bankers, with one noting that the differential between French spreads and those of more tightly trading jurisdictions has collapsed, and that the differential among French issuers had also narrowed.

While French paper would be some 50bp back of Swedish names, for example, according to the syndicate official, that differential used to be almost in the triple digits.

“You’re now in the realm of a decent spread,” he said. “The name is do-able these days.”

As investors search for yield and high quality assets, and tail risk in the context of the euro-zone sovereign debt crisis has lessened, he said, investors are willing to explore offerings from jurisdictions trading at wider levels.

A French covered bond would constitute another incremental step in the recent development of the US covered bond market, suggested the syndicate official, after Royal Bank of Canada launched the first ever fully-SEC registered covered bond and Sweden’s Stadshypotek extended the yield curve out to seven years with a $1.5bn issue a week and a half ago.

Others noted that while there would be appetite for French covered bond issuance, the emergence of a deal would depend on where the level “shakes out” and how this compares with alternatives, and that an illiquid secondary market makes it difficult to gauge the extent of demand and appropriate new issue levels.

“Liquidity in the secondary market is pretty bad,” said one. “It feels like there’s a good amount of demand out there for French names, but we would have to see what the response would be.”

He noted that there has been a change in sentiment toward France, with the country’s government bonds recently returning to trading more like safe haven paper.

However, another syndicate official said that there is still an “impressive” bias against France, as evidenced by a 30bp premium that GDF Suez paid versus Heineken in the corporate market yesterday despite being rated two notches higher.

“If French covered bond issuers are looking to the US as a form of arbitrage they’re not going to get it,” he said.

Recent French FIG Yankee supply came in the form of a $1bn five year senior unsecured issue for Crédit Agricole, which was re-offered at 150bp over Treasuries on 24 September on the back of a $1.75bn order book.