Crédit Mutuel Arkéa raised Eu1bn through two taps today (Wednesday), with Eurosystem buying of the issuance representing the first primary market purchases under the ECB’s second covered bond purchase programme.

The French issuer added Eu250m to a Eu1.25bn June 2015 obligations à l’habitat issue and Eu750m to a Eu1bn April 2021.

“We started having discussions in the morning, said a syndicate official, “when it looked as if the Italian prime minister Silvio Berlusconi resigning could make issuing easier. But the market is definitely in risk-off mode.”

Berlusconi yesterday announced that he would resign after a package of austerity measures are approved, but the news failed to calm markets, with yields on BTPs quickly rising well above 7%.

Bookrunners Crédit Agricole, DZ Bank, LBBW and joint lead Crédit Mutuel Arkéa set guidance on the long three year tap at the low 100s over mid-swaps and 125bp-130bp over on the 2021 increase. Books were closed at 1215 CET with combined orders above Eu1bn, with pricing fixed at 100bp over on the June 2015 increase and 125bp over on the tap of the April 2021 issue.

A syndicate official at one of the leads said that the size of the order book captured participation from one central bank operating under the ECB’s new covered bond purchase programme (CBPP2). The Eurosystem participation did not influence pricing, he said, which reflected the levels expected by investors.

“We are proceeding as usual, knowing that at some point we might get additional traction [from the Eurosystem],” he said.

He put the new issue premium incorporated in the re-offer spread of the long dated tap at 25bp and that of the June 2015 increase at 10bp. A syndicate official away from the leads said that the poor market conditions explained the substantially larger new issue premium for the longer dated tranche.

The lead syndicate banker said that he was very pleased with the transaction given difficult market conditions, with the leads having gathered Eu750m of demand before the CBPP2 orders came in despite the market tone having “completely turned” after they had opened the order books this morning. Arkéa’s transaction can send a strong signal to the market, he added.

The syndicate official away from the leads said the tap could pave the way for a benchmark transaction, but another said that with the market in risk-off mode, the tap would not necessarily presage benchmark issuance in the near future.

“A tap in general has always to be eyed in a different way than a benchmark,” he said. “You also don’t know how much the central bank is buying in this tap.”

Bankers expect Eurosystem orders to continue to be placed in the manner they were for Crédit Mutuel Arkéa’s taps.

“They will not act as a frontrunner,” said a DCM banker. “But if there is a transaction in the works, they will like to be informed of it.”

He said that it is becoming clear that, contrary to many market participants’ hopes, the Eu40bn will probably be split between Eurosystem members in the same way as CBPP1’s Eu60bn was allocated, namely according to the ECB capital key, meaning that the central banks of larger countries such as Germany will have more funds to spend. However, he said that he expects these central banks to be less domestically focused than previously.

“Some central banks are more open to investing in other countries than they have done before,” he said. “For example, the Bundesbank will probably be a bit more open.”

An ECB spokesperson told The Covered Bond Report that information about purchases under CBPP2 would be reported daily because they had a bearing on liquidity conditions. He had no comment to make on whether the Eurosystem had started buying under CBPP2, but noted that purchases take some days to settle after trading had occurred. Today’s taps will settle on 18 November.