Caffil is pricing the first benchmark covered bond since the announcement of CBPP3 last Thursday, a Eu1.25bn five year issue, at 1bp through mid-swaps – some 5bp tighter than where it might have been priced before the ECB’s announcement, according to a banker at one of the leads.

Leads BNP Paribas, Crédit Agricole, Deutsche and SG built an order book of around Eu4.9bn comprising some 130 accounts for Caisse Française de Financement Local (Caffil), with very little price sensitivity, according to a banker at one of the leads.

The mandate was announced last Friday and after going out with initial price thoughts of the mid-single-digits over mid-swaps this (Monday) morning, the leads attracted orders of some Eu3.5bn. Guidance was set at the 2bp over mid-swaps area and the deal was ultimately priced at 1bp through mid-swaps.

“There is not much to say except, merci Draghi,” said the lead banker.

He said that ahead of last Thursday’s announcement by European Central Bank president Mario Draghi of a third covered bond purchase programme (CBPP3) he had advocated pricing some 5bp wider, with initial price thoughts of the mid to high single-digits and a re-offer spread of 4bp or perhaps 3bp over.

Comparables included a Caffil February 2019 that was quoted at -4bp/-6bp this morning, slightly tighter than on Friday.

“The market is red hot,” said a syndicate banker away from the leads. “Spreads have just crashed tighter.

“Look at Caffil: what a result that is!”

However, another syndicate official described the IPTs on Caffil’s deal as “incredibly defensive”, saying that he saw fair value at 3.5bp through mid-swaps and that it was clear that the deal would be comfortably priced close to mid-swaps flat.

“In this market coming in 6bp is a pretty enormous move, as Eu4.9bn is a pretty enormous book,” he said. “They took the wrong starting point.”

In spite of the impressive result achieved by Caffil, no new mandates have been announced for benchmark covered bonds – although Münchener Hypothekenbank has announced a mandate for a Eu300m mortgage Pfandbrief that is set to be the first sustainable covered bond issue (see separate article).

Abbey on Friday announced the mandate for a roadshow at the start of this week with Commerzbank, Natixis, Santander and UniCredit as leads, but no other benchmarks are expected soon.

“We all know that basically when it comes to covered bonds, needs are very limited,” said a syndicate official. “Those banks that are looking to access the market before year-end are focused on capital trades.

“And those issuers that have seen what Caffil achieved today are minded to wait rather than to pull the trigger right away because they believe it shows that spreads may well get tighter still.”

And another banker was negative about CBPP3, reflecting views among many covered bond market participants.

“Does CBPP3 help the real economy in any way?” he asked. “No. Does CBPP3 help us in the covered bond market in any way. No.

“Does it crowd out real investors? Probably.”