Crédit Mutuel Arkéa, CRH and Münchener Hyp took advantage of better sentiment to add new covered bond supply this (Thursday) morning, but unspectacular subscription levels and pricing at the wide end left some bankers asking how wise the early moves had been.

Crédit Mutuel Arkéa, Brest

Conditions earlier this week had been volatile because of fears of the consequences of an early reining in of quantitative easing measures, but after markets stabilised into yesterday a restart to the primary market was considered possible.

Münchener Hypothekenbank was first to announce its deal this morning, a Eu500m no-grow 15 year mortgage Pfandbrief. Caisse de Refinancement de l’Habitat then announced a Eu250m-Eu500m reopening of a Eu1bn January 2025 deal, and Crédit Mutuel Arkéa mandated a Eu700m no-grow 10 year obligation de financement de l’habitat issue.

But while CRH was able to hit the top end of its targeted size range at 47bp over mid-swaps, following guidance of the 48bp area, Crédit Mutuel Arkéa’s deal was limited to Eu500m at 48bp over mid-swaps after guidance price thoughts of the mid to high 40s. Münchener Hyp sized its deal at the stated Eu500m, but it was re-offered at 17bp over mid-swaps, the wide end of guidance of 15bp-17bp over.

A syndicate official said that the issuers may have been better advised to wait for Monday given that the market is not yet fully settled and opinion on the outlook for rates is divided. One or two other core issuers are said to be looking at early next week for new issue projects instead, said bankers.

The syndicate official also suggested that three issuers coming at the same time had not helped and that this could have been avoided, noting that some leads present on more than one transaction. Münchener Hyp’s leads were BNP Paribas, BayernLB, DZ, LBBW, NordLB and WGZ; CRH’s were BNP Paribas, LBBW, Natixis and SG; and Crédit Mutuel Arkéa’s were Bank of America Merrill Lynch, Crédit Agricole, Credit Suisse, DZ, and UniCredit.

A banker involved in Crédit Mutuel Arkéa’s deal said that it had been felt that there would be greater demand for the long dated supply after the back-up in rates.

“But we kind of underestimated the nervousness and volatility that persists in the market,” he said. “The feedback’s been: we’re not quite ready yet.”

Crédit Mutuel Arkéa is understood to have had more than Eu500m of IoIs for its deal, but not found sufficiently strong support for the Eu700m size indicated in the initial announcement.

Another syndicate official said that while CRH had offered a decent concession, the pricing levels of Münchener Hyp and Crédit Mutuel Arkéa were “very skinny” and “fairly skinny”, respectively.

He noted that the 10 year tranche of a Helaba deal launched on Monday of last week had been more difficult than a five year tranche, with the 10 year also now being traded at 13bp-14bp over after being re-offered at 13bp while the five year paper has tightened from minus 1bp to minus 6bp.

He said that while the back-up in yields may enable investors to achieve higher absolute returns and be helpful – with Münchener Hyp’s deal paying a 2.5% coupon, for example – it was not clear how beneficial this had been and questioned whether the deal was fully covered.

However, Rafael Scholz, head of treasury at Münchener Hyp, said that the order book was around Eu600m and that the pricing at 17bp had been decided upon by the issuer even though 16bp was possible. He said that the idea of launching a 15 year transaction to offer investors a higher yield was initially conceived in January, but it was decided to wait until a 2.5% yield was possible.

Scholz said that after Fed chairman Ben Bernanke’s comments on Wednesday of last week (19 June) triggered a large back-up in yields the issuer discussed the project with syndicate banks on Friday afternoon. They then monitored the market this week and, in light of yesterday’s more stable market, decided to proceed if the market was supportive this morning, which it was judged to be.

He said that the audience for a 15 year deal would always be more limited than for more usual maturities and that bookbuilding this morning was a bit challenging when the market turned out to be more positive than expected, with yields falling.

“Because of the way the rate market was today we as the issuer decided to go for 17bp,” he said, “showing our commitment to the investors. The syndicate said that we could have done it at 16bp.

“We are very happy with 17bp and investors can be very happy with the yield.”

He said that the buyers had mostly been German, with around 40 accounts participating.

CRH’s spread level of the 48bp area compared with levels of 40bp mid and 43bp bid on the outstanding paper, according to a banker away from the deal, and was therefore more attractive than the other two issues in the market today. He said he was surprised that it seemed to get off to a slow start, but ultimately did fine.

Overall, despite the challenges of today’s transactions, he saw the emergence of supply as a positive sign for the market after the tapering episode.