France’s CRH responded to demand for its bonds by yesterday (Monday) pricing a Eu1.4bn 12 year issue that benefited from less-negative sentiment and supportive yield levels, but still came at a spread that illustrates that the market remains challenging, according to an official at the issuer.

“Certain banks had been telling me that there was demand for our bonds from investors,” said Henry Raymond, chairman and chief executive officer at Caisse de Refinancement de l’Habitat, “and it was these signs, which I had been getting for already some time – with banks telling me that the market was closed, but not for CRH – that prompted CRH to come to market.”

The issuer was at the same time able to benefit from an issuance window characterised by a less negative mood and yield levels appealing to investors active at the long end of the curve, added Raymond.

Leads BNP Paribas, Crédit Agricole, HSBC, Natixis, Société Générale and Royal Bank of Scotland announced the transaction yesterday morning before finalising the maturity, according to Laurence Ribot, fixed income syndicate at Natixis.

“We knew we wanted to go ahead with a long dated issue, and a 12 year maturity was the consensus from the very beginning as the this would allow us to get close to 4% yield,” she said, adding that key accounts quickly placed orders once the order books had been opened.

“This meant we had good traction from the very beginning,” she said.

Guidance was set at 120bp-125bp over mid-swaps, with the leads fixing the re-offer spread at 120bp over once they knew orders were sufficient to size a Eu1bn deal, according to Ribot. She put the new issue premium at 10bp-12bp over.

Orders totalling Eu1.6bn were placed.

Syndicate officials away from the leads had suggested the transaction was primarily yield driven, and Ribot acknowledged this, saying that the leads had been targeting a 4% yield but that a re-offer yield of 3.95% was close enough to satisfy most investors.

“It worked very well,” she said.

Raymond echoed this, and said that he would expect the spread to tighten in the secondary market.

“At this price I would think it likely that the investors will get good performance,” he said.

It was difficult to put a price on the “marginal impact” of different measures or aspects of the market, he added, be this the unveiling by the European Central Bank of a second covered bond purchase programme (CBPP2), a meeting between German Chancellor Angela Merkel and French president Nicolas Sarkozy on Sunday, or poor liquidity.

“What is important is for the market to have some idea of how things are going to develop, to be able to see light at the end of the tunnel,” he said. “Clearly the market environment is not at all easy, because otherwise we would not have paid this price.”

Given prevailing market conditions it was “not absurd” for financial institutions to try to prefund for next year, with many having completed or exceeded their funding programmes for 2011, he said.

Domestic demand drove the transaction, accounting for 38% of allocations, followed by Germany/Austria with 28%, Scandinavia 16%, UK/Ireland 11%, the Benelux 3%, Switzerland 2%, and others 2%. Insurance companies bought 43%, funds and asset managers 24%, banks 16%, central banks 14%, and others 3%.