CFF left some market participants speechless this (Tuesday) morning after pricing a Eu1bn five year obligations foncières issue at 5bp through mid-swaps, while UniCredit Bank Austria offered the first benchmark with a pick-up over swaps since CBPP3 was announced.

Compagnie de Financement Foncier compatriot Caffil yesterday (Monday) priced the first benchmark covered bond since the European Central Bank’s unveiling of plans for a new covered bond purchase programme (CBPP3) last Thursday, issuing a Eu1.25bn five year deal at 1bp through mid-swaps – roughly 6bp inside the middle of initial price thoughts and, according to a lead syndicate official, some 5bp inside where it might have issued a week ago.

CFF followed a similar routine this morning, with leads Commerzbank, Danske, LBBW, Mediobanca and Natixis having gone out with IPTs of the 1bp over mid-swaps area, before revising this to guidance of the 2bp through area, with ultimate pricing at 5bp through mid-swaps.

A syndicate official at one of the leads acknowledged that the plus 1bp area and even minus 2bp guidance was “quite conservative”.

“It’s quite a jump, I have to admit,” he said. “Syndicates and issuers are getting used to this post-ECB world, with the market bid only and so technical.

“It’s crazy.”

He noted that Caffil’s issue had already tightened from its re-offer of 1bp through to -5bp/-8bp this morning.

And after Caffil built an order book of more than Eu4.9bn yesterday, CFF generated some Eu4.8bn of demand for the Eu1bn no-grow deal, according to provisional figures from the leads, with as many as 150 accounts participating.

“Everyone’s piling in,” said the syndicate official, although he noted that accounts that were beginning to find pricing too tight were biased towards bank treasuries. “It’s difficult for it to make sense for them.”

As with Caffil, CFF’s book is said to have a larger central bank contingent involved.

A syndicate banker away from the leads said that CFF’s result was “astounding”.

“That’s a trade!” he said. “It just goes to show how crazy things are. People expect spreads to just ramp in on the back of this purchase programme.

“But there’s got to come a point where you have to ask if investors know what they are buying and what they are doing.”

He suggested that any issuer who had been monitoring the market ahead of CBPP3’s announcement should have no reason to wait to tap the market after Caffil showed what could be achieved yesterday, with those hoping to do a covered bond before year-end advised to issue now.

However, he noted that the long end remained untested.

“We need to see a 10 year trade now,” he said. “We have seen the five years, with everyone outdoing themselves to trade through swaps. We know that a seven year will work – it’s pretty much the same as fives but perhaps with a positive spread.

“It’ll be interesting to see what the curve is between seven and 10 years.”

Another syndicate banker said that he expects to see a 10 year deal from a core issuer over the coming week.

UniCredit Bank Austria’s deal was announced as a Eu500m no-grow long five year at IPTs of 10bp-12bp over mid-swaps. According to a syndicate official at the leads, this was revised to guidance of the 8bp area, plus or minus 1bp [corrected from 10bp area].

“Things are so tight, I get a headache just thinking about it,” said a banker away from the deal.

A covered bond analyst noted that a Eu500m October 2019 UniCredit Bank Austria benchmark issued in April at 23bp over mid-swaps now trades at around 7bp over.

Barclays, Danske big in sterling

Barclays and Danske priced sterling three year floating rate covered bonds yesterday (Monday), taking an impressive combined £2bn out of the market. Barclays Bank sold a £1.5bn (Eu1.87bn) deal, while Danske Bank raised £500m.

Barclays priced its floater at 19bp over three month Libor, after having gone out with IPTs of the low 20s and revised these to 20bp plus or minus 1bp, via leads Barclays, Deutsche, Santander, Standard Chartered and Wells Fargo. Danske, Lloyds and RBS priced the Danish bank’s deal – backed by its I pool (international) – at 21bp over mid-swaps, following IPTs of the low to mid-20s and guidance of the 20bp area.

Danske’s book totalled more than £800m. A banker at Danske said that Barclays’ deal may have taken a little pricing power away from the Danish bank – which had announced its deal first – but that the issuer had nevertheless achieved a very good size and level.

Banks were allocated 60% of Danske’s deal, asset managers 16%, insurance companies 16%, and others 8%. The UK and Ireland took 62%, the Nordics 27%, Germany and Austria 4%, Switzerland 3%, the Benelux 3%, and others 1%.