French Banks, Insurers Sell Bonds After Macron’s New Cabinet

French banks and insurers tapped the European market for bonds on Monday, with investor demand holding up for most offerings despite the country’s ongoing political crisis.

BPCE SFH sold a €1 billion ($1.2 billion) covered bond, which saw more than €3.1 billion in orders, according to people familiar with the matter. Insurance firm La Mondiale SAM raised €500 million of Tier 2 debt, with a final book also more than triple the deal size at above €1.69 billion.

AXA SA’s offerings were more mixed, a sign of price sensitivity emerging for the riskiest notes. Its €750 million of Tier 2 bonds with a coupon of 4.125% drew more than €1.7 billion in demand, though an equivalent-sized Restricted Tier 1 sale saw final orders drop to €800 million.

Borrowers seized on President Emmanuel Macron’s weekend announcement of a new cabinet to complete the deals on Monday, according to separate people familiar with the matter. While the pressure is building for reappointed prime minister Sebastien Lecornu to pass a budget and avoid another government collapse, prices for French bank debt and government bonds held their ground.

“The reality for France (and holders of French paper) is that deep political fractures remain unresolved,” wrote Rabobank strategists led by Matt Cairns in a note. “The balance of power is fragile, and the clock is ticking — not just for Macron, but for the credibility of French fiscal policy more broadly.”

In the case of AXA’s RT1, the weakness came as investors worried about the bond’s so-called reset spread — a margin over a market rate that determines the coupon if the first call option is skipped. That was among the tightest ever printed in the euro-denominated RT1 market, based on data compiled by Bloomberg.

Traders have already started indicating the bond’s price below par, according to two people familiar with the matter.

Such tight spreads in RT1 deals and in the equivalent Additional Tier 1 bonds sold by banks have been raising concerns in recent months. Today’s RT1 and Tier 2 deals add to the record pace of bonds being sold this year, according to data compiled by Bloomberg.

BPCE Assurances SA — the insurance entity of the lender — has also mandated for a RT1 bond, along with a green Tier 2. It’s holding investor calls on Monday with the deal to follow later this week, subject to market conditions, according to another person familiar with the matter.

Photograph: The La Defense business district of Paris. Photo credit: Nathan Laine/Bloomberg