Abbey and WL Bank launched 10 year benchmarks this morning, in the first tests of the long end since CBPP3 was announced, while bankers suggested that the response to euro-zone (EZ) and non-euro-zone deals, such as Credit Suisse today, were diverging.

WL Bank achieved pricing of mid-swaps flat on a Eu600m no-grow mortgage Pfandbrief via leads Deka, DZ, LBBW, UBS and UniCredit. The leads had gone out with initial price thoughts of the low to mid-single-digits at around 0900 CET and then set guidance at the 1bp area after having taken more than Eu1bn of indications of interest. The books were then closed at around 1015 with some Eu2bn of orders and the re-offer set at mid-swaps flat.

The last German 10 year Pfandbrief was a Eu500m deal for Münchener Hypothekenbank in mid-June that was priced at 7bp over mid-swaps.

Syndicate officials at the leads said that the pricing of mid-swaps flat had surprised many market participants.

“Although everyone considered that the low-single-digits was possible, mid-swaps flat was not something everyone thought was on the cards,” said one. “It was a very smooth and very successful process.”

However, he said that the book was very domestic.

“Be prepared for a very German show,” he said. “There are not that many other people who are interested in buying German 10 year paper at flat.”

He said that the lack of comparables and state of the market made giving pricing references difficult, but he suggested that a similar deal would have been priced at plus 5bp a week ago, before CBPP3 was announced.

A syndicate official at another of the leads said that the book of Eu2bn for what was announced as a Eu600m deal was “nothing but a blow-out”.

Abbey raised Eu1.5bn in a dual tranche deal, split between Eu1bn fives and Eu500m 10s, while Credit Suisse sold a Eu1.25bn seven year, and bankers suggested that the outcome of the deals showed a divergence between euro-zone issuance that is set to be eligible for the European Central Bank’s third covered bond purchase programme (CBPP3) and issuance that is not – including that of the UK and Switzerland.

Credit Suisse’s seven year issue was priced at 7bp over mid-swaps on the back of Eu1.8bn of orders, following IPTs of the 10bp area and then guidance of the 8bp area. A syndicate official at one of the lead managers – Banca IMI, Credit Suisse, Danske, Deutsche, RBI, SEB and SG – said that fair value for a new Credit Suisse issue was 6bp, mid, based on mid levels of 4bp for an outstanding March 2021 CS issue and a 2019 at minus 1bp, meaning that the new issue premium was zero or 1bp.

However, a banker away from the leads saw CS’s outstanding 2021s at 3bp or 4bp over and noted that UBS 2021s were at plus 1bp or flat. He suggested that the implied new issue premium demonstrated how new non-euro-zone covered bond issues are not “exploding” like euro-zone issues, particularly from Caffil and CFF at the start of the week.

“We’re starting to see a difference between the euro-zone and non-euro-zone to some extent, both in terms of pricing and book size,” he said.

Another syndicate manager agreed.

“People are making a sort of difference between ECB-eligible and not,” he said. “So from that perspective, there is more prudence in that part of the market versus the Caffil and CFF madness.”

A syndicate official at one of Credit Suisse’s leads acknowledged that for such a non-euro-zone – and also non-legislative-based issuer – the deal was more “old-style”, i.e. similar to what prevailed overall before CBPP3 was announced. He noted that after tightening from 15bp over two months ago to 7bp over a couple of weeks ago, Credit Suisse’s outstanding 2021 issue had not moved in the past week.

“UBS and Credit Suisse have lagged all the pure Europeans in the last month,” he said, “and specifically in the past week.”

He nevertheless said that on a normal basis Credit Suisse’s deal could be considered very successful. The leads attracted over Eu1bn of indications of interest at the 10bp IPTs and the ultimate order book of Eu1.8bn.

He said that the lack of CRD compliance, missing out on CBPP3, and 20% risk weighting of the issue meant that the book had less “fast ECB cheap money” in it and therefore went slower, but as a result had a book with more traditional covered bond buyers and particularly good asset manager names.

Abbey attracted some Eu3bn of demand to its dual tranche issue, with the Eu1bn five year tranche priced at 2bp over mid-swaps and the Eu500m 10 year at 14bp over by leads Commerzbank, Natixis, Santander and UniCredit.

A syndicate official away from the leads said that he understood early demand to have been skewed towards the longer dated tranche, and that the evolution of pricing appeared to reflect this, with the five year pricing being tightened a little from the 3bp area but the 10 year from IPTs of the high teens.

Another banker said that while the deal had gone well, he would have expected Abbey to come slightly tighter given the outcome of earlier deals this week, and also cited its non-euro-zone status as a possible reason for this.

He suggested that even one week on from the announcement of CBPP3 the market was still confusing.

“I’m scratching my head trying to work out how tight things should go,” he said.