Caisse Française de Financement Local priced the tightest five year French benchmark covered bond since the onset of the financial crisis yesterday (Monday), according to its leads, issuing a Eu1.25bn deal at minus 1bp thanks to news of CBPP3 and record participation from central banks.

The benchmark was the first since plans for a third covered bond purchase programme were announced by the European Central Bank last Thursday, with the market having rallied strongly in the wake of the news.

Yesterday morning leads BNP Paribas, Crédit Agricole, Deutsche and SG built an order book of over Eu4.9bn for Caffil’s obligations foncières after attracting demand from over 130 accounts. The rallying market and strength of demand meant that pricing was tightened from initial price thoughts of the mid-single-digits over mid-swaps to guidance of the plus 2bp area, with indications of interest at over Eu3bn, then revised guidance of mid-swaps flat, and finally a re-offer of 1bp through mid-swaps.

The large move from IPTs to re-offer drew criticism from some market participants, but a banker at one of the leads said it was difficult to read the full impact of the ECB’s actions at the time the deal was announced, and that the leads had moved early to ensure that Asian accounts could be involved. He added that the IPTs of the mid-single-digits broadly reflected the early feedback the leads received.

A funding official at Caffil said that the market context made it more difficult than usual to determine the appropriate level, particularly given that Caffil was the first to enter the new environment.

“The idea was to have a fair IPT approach and to tighten the guidance step by step during the bookbuilding process,” a funding official at Caffil told The CBR. “The market was and is so strong that finding the right price is a question of dialogue with investors via the bookbuilding process.

“Caffil was the first entrant with a benchmark transaction post-ECB and we paved the way for the subsequent issuers – and we can see that every issuer and banker is still trying to find the right balance.”

Pricing on a CFF Eu1bn five year deal today (Tuesday) was tightened from IPTs of the 1bp over mid-swaps area to minus 5bp. According to a banker on that deal, Caffil’s issue had already tightened to -5bp/-8bp this morning.

According to the leads, the new issue is the first five year euro benchmark covered bond from a French issuer to be priced inside mid-swaps since the onset of the financial crisis, and also the first covered bond in the maturity this year with a coupon below 0.5%, at 0.375%. The issuer cited expected favourable treatment for covered bonds in upcoming Liquidity Coverage Ratio rules as also supporting the market and contributing to the success of its deal.

According to Ralf Grossmann, head of covered bond origination at SG, the 47% distribution of Caffil’s issue to central banks and official institutions is the highest proportion to ever achieved on a five year euro covered bond benchmark. He attributed this to Caffil’s strong marketing efforts to get on central banks’ buying lists, its convincing credit story and track record of secondary market performance, a fair price setting process, and an early screen announcement to allow Asian central banks in particular time to prepare and indicate interest.

Alongside the 47% share to central banks and other institutions, investment managers were allocated 34%, banks 17%, and insurance companies 2%. Germany and Austria took 38%, Asia 17%, France 8%, the UK 7%, the Middle East 7%, Nordics 6%, the Benelux 6%, Switzerland 5%, central Europe 5%, and others 2%.

The issuer highlighted that the five year completes its curve, with Caffil having previously issued seven, 10 and 15 year benchmarks since being created at the beginning of 2013. With 97% of its Eu4bn 2014 funding programme complete, it is not expected to launch another benchmark this year.