Compagnie de Financement Foncier is set to issue a long five year euro benchmark OF tomorrow (Tuesday), after victory for Emmanuel Macron delivered a boost to markets, albeit with little spread impact. CFF follows a Eu1.75bn deal for peer Caffil that rode the earlier relief rally and better RV.

Macron’s win in the second round of the French presidential election yesterday (Sunday) had been widely expected, but bankers said the result should nonetheless provide a boost to market sentiment, given that his victory was even more convincing than many had forecast.

“While the result was expected, what is actually really good news is that Macron’s win was stronger than expected,” said a syndicate banker. “Polls last week had been suggesting a 60-40 margin of victory over Le Pen, but now we’re talking about 66-34 in the end.

“That bodes well and should pave the way for some successful supply. This was probably the last bit of uncertainty in the market, so now we have a good window that is mostly clear of political risks.”

French covered bond spreads were seen at most 1bp tighter this morning, however, with the anticipated result already widely priced-in and with trading somewhat limited due to a public holiday marking VE Day in France today.

Compagnie de Financement Foncier (CFF) has joined the front of the queue to issue when market participants return, however, announcing this (Monday) morning that it has mandated BBVA, Crédit Agricole, Deutsche Bank, Natixis and UniCredit as joint lead managers for September 2022 obligations foncières.

A syndicate banker at one of the leads said the deal could be launched tomorrow, subject to market conditions.

The deal will be CFF’s second benchmark covered bond of the year, following a Eu1.5bn long six year on 5 January.

“Sunday’s news sets up the market well for CFF,” said a banker away from the leads. “They shouldn’t have any problems finding eager buyers for this, especially given that it is a maturity that investors should like.

“Last week’s French supply showed that demand is deep across the curve.”

The Eu1.75bn dual tranche deal for Caisse Française de Financement Local (Caffil) on Wednesday was the issuer’s largest ever transaction, and was launched in response to demand for French covered bonds prompted by attractive relative value emerging in the wake of the first round of the election.

Before his success yesterday, Macron had two weeks earlier calmed fears of a shock result by triumphing in the first round of the election, prompting a rally in French government bonds that saw them outperform French covered bonds.

“After the first round we saw a gradual stabilisation of the OAT and investors were clearly in search of French covered bonds,” said Sami Gotrane, head of treasury and financial markets at SFIL, Caffil’s parent. “Especially at the long end of the curve, French covered bonds have not offered such a spread versus OATs for at least a couple of years.

“It is clearly a good entry point for a lot of investors and we received direct feedback asking if we would issue and that’s what we have done: we have fuelled the market where there was appetite. And we did this with a dual tranche issue because it allowed us to satisfy different categories of investors.”

On Wednesday morning leads Barclays, Crédit Agricole, Citi, Deutsche Bank and Natixis opened books for seven and 15 year euro benchmarks with guidance of flat to mid-swaps and the 25bp area, respectively. Following demand of some Eu2bn for each tranche, the seven year was ultimately sized at Eu1bn and priced at minus 5bp, while the 15 year ended up at Eu750m at 20bp over.

“Clearly Eu1bn was on the table at 20bp over for the 15 year, given the order book of Eu2bn, but we had reached our target and we also expect French covered bonds to continue to perform,” said Gotrane. “It would also have been possible to break the 20bp level and price Eu500m at 19bp, but we increased the size from what we needed to better allocate investors and because we felt that 20bp was a fair price.”

“We also had some interest from investors in a third, longer dated tranche, but, as I said, we had comfortably reached our target through the two tranches.”

Photo: Lorie Shaull/Flickr