France’s CFF today (Tuesday) met with strong demand for its first new benchmark covered bond since late 2012 and since restructuring its cover pool to meet revised ECB repo eligibility criteria, with Canada’s CCDQ drawing less interest but building a “high quality” book for a euro debut.

The deals come against an improved market backdrop, with a syndicate official noting that although the situation between Russia and Ukraine remains unsolved investors are more comfortable with it.

“The market looks healthy and there is huge liquidity,” he said. “However, it is the peak of Carnival season in Germany, and issuers dependent on investors from the affected regions may question whether now is the right time to issue.”

Another said that there had not been a big sell-off in the euro market yesterday (Monday), with market participants more in wait-and-see mode and investors prepared to buy today.

Away from the flow FIG market, the first sterling denominated Additional Tier 1 bond, launched by the UK’s Nationwide, was in focus, attracting strong demand.

A syndicate banker said the market is open –“clearly it is not a problem to print”.

A euro benchmark covered bond from Eika Boligkreditt is in the pipeline, with the Norwegian issuer due to finish a roadshow today (Tuesday). Deutsche Bank, LBBW, Natixis and Nordea have the mandate. National Bank of Canada on Friday wrapped up a series of investor update meetings (see below).

Compagnie de Financement Foncier (CFF) launched its first new euro benchmark covered bond since November 2012 today, a Eu1bn five year obligations foncières issue for which more than Eu2.1bn of orders were placed, according to a syndicate official at one of the leads – BayernLB, HSBC, Natixis, Société Générale and UniCredit.

The deal will be priced at 16bp over, the tight end of guidance of the 17bp over area, which followed initial price thoughts (IPTs) of the 20bp over area.

The lead syndicate official said that the new issue premium would be limited.

“It is hard to judge a new issue premium,” he said. “It should be 0bp, but at most it will be 1bp to 2bp.”

The French issuer last sold a new euro benchmark covered bond in November 2012, a Eu1bn 10 year that was priced at 74bp over. It has however been in the market since then with taps, in late January adding Eu750m to a 2022 obligations foncières issue at 59bp over and on 13 February increasing a 2025 issue by Eu250m at 75bp over.

A syndicate banker away from the leads said CFF’s deal went well, noting that the issuer was able to price through its high coupon curve, which should not come as a surprise but illustrates strong demand for current coupon bonds.

The deal is the sixth new issue from France this year, with a Eu1bn five year for BNP Paribas Home Loan SFH the most recent French benchmark, coming at 8bp over on 17 February.

Today’s deal is CFF’s first new benchmark since its obligations foncières met new ECB repo eligibility criteria as a result of the issuer disposing of securitisation tranches in its cover pool, with the issuer’s covered bonds also achieving compliance with the Capital Requirements Directive (CRD IV) and therefore benefitting from preferential risk weightings.

Following a November 2012 decision by the European Central Bank, effective April 2013 covered bonds with external securitisation are no longer eligible as collateral for repo with the central bank, although already issued covered bonds will be grandfathered until the end of November.

CFF on 20 December announced that it no longer holds securitisations on its balance sheet and therefore “is no longer subject to this ineligibility for ECB refinancing operations”.

“In addition, Compagnie de Financement Foncier achieved compliance with CRD IV,” said the issuer.

This means that the obligations foncières carry a 10% risk weight.

CCDQ ‘less convincing’

Caisse centrale Desjardins du Québec (CCDQ) is pricing a Eu1bn five year covered bond at 15bp over today, after leads Barclays, BNP Paribas, Crédit Agricole and DZ Bank gathered more than Eu1.2bn of orders for a “high quality” order book, according to a syndicate banker at one of the leads.

The order books were due to close at 1330 CET.

At 15bp over, the deal will be priced in line with guidance of the 15bp over area and initial price thoughts of the mid-teens over. The IPTs generated indications of interest (IOIs) of nearly Eu1bn.

The transaction is CCDQ’s first benchmark covered in euros, after having twice sold US dollar deals, and its first under a new programme compliant with Canada’s covered bond legal framework.

A syndicate official away from the leads said CCDQ’s deal should work, as long as credit lines are in place, while another noted that CCDQ’s transaction was “less convincing” than CFF’s, attributing this to name recognition and expectations that Canadian covered bonds will not count as top level Liquidity Coverage Ratio (LCR) assets. The spread on CCDQ’s deal was “the right one”, he said.

An investor said that the deal looked cheap compared with where other Canadian covered bonds had come.

A syndicate official on CCDQ’s deal said that a tighter spread would have been justified, but that because of the inaugural nature and the market backdrop this was not pursued.

“We’re very happy with the outcome given the Ukraine situation and competing supply,” he said.

Syndicate officials are expecting further Canadian issuance before the end of the first quarter. National Bank of Canada completed a three-day investor update roadshow on Friday, working with BNP Paribas, Commerzbank, NBC Financial Markets and RBS.

“No deal has been announced yet,” said a syndicate banker at one of the leads. “However, you don’t go on the road just to meet investors.”