A Eu1bn 10 year Nordea Finland deal today (Wednesday), the first new benchmark eligible for CBPP3 since the programme began, met with a “bonkers” response and 22% being allocated to central banks. Credito Emiliano has mandated a seven year OBG. (Updated with stats.)

The European Central Bank’s third covered bond purchase programme started at the beginning of last week (20 October), but although it has confirmed Eu1.704bn of purchases since then these have not been of new benchmarks given that the only such supply there has been was from non-Eurozone issuers that are ineligible.

Today’s issue for Nordea Bank Finland – led by Barclays, LBBW, Natixis and Nordea – a total order book of some Eu3.7bn and was priced at 1bp over mid-swaps. This was well inside the initial price thoughts of the 6bp area, at which some Eu2.5bn of indications of interest are said to have been taken, and inside guidance of the 3bp area.

Syndicate bankers away from the leads were impressed by the order book and pricing.

“It’s obviously a bonkers result in terms of book size,” said one.

He also said that the pricing felt “slightly distorted”. He said that while a level of less 5bp for an outstanding old 4% April 2021 Nordea benchmark might not make 1bp look wrong, the low absolute level of rates made it a “very, very, very strong result”.

Another syndicate banker said that the outcome also surprised him. He said that the IPTs made sense and that he would have expected a final level of around 4bp over.

One suggested that the whole market had been overwhelmed by the Eu3.7bn book and that the leads had possibly been targeting a 3bp-4bp outcome in light of the IPTs. He said that the extent of the spread movement was surprising given that the leads had been able to get some feedback yesterday (Tuesday).

He suggested that Eurosystem participation under CBPP3 may have been the unpredictable element in between the leads’ initial soundings and the official bookbuilding process.

“It might have been the missing part of the equation for them,” he added, “as they have indicated that they are not going to play a lead order role.”

However, other bankers said that, from what they had heard, they did not believe central bank participation to have been sufficiently behind the deal’s momentum to explain this.

“It’s not a criticism,” said one, “but if you look at the whole process and where they started and finished, it shows that the leads and issuer didn’t really know what the clearing level for a 10 year deal was.”

A syndicate banker away from the leads said that according to his understanding some Eu400m of orders had been placed by Eurosystem central banks under CBPP3.

A syndicate official at one of the leads said that central bank allocations on Nordea were 20%-25%, although he noted that this included non-CBPP3 buying, with Asian central banks, for example, also in the book. He said that the allocations to central banks were slightly larger than their share of orders in the book. He also suggested that a precise breakdown of CBPP3 allocations would not be given.

Update: full distribution statistics: banks 39%, asset managers 25%, central banks/official institutions 22%, pension funds/insurance companies 12%, others 2%; Germany/Austria 49%, Nordics 17%, Asia 7%, Switzerland 7%, UK/Ireland 7%, France 6%, Benelux 3%, Italy 3%, others 1%.

Several bankers said that the demand for the 10 year maturity and the level achieved was very encouraging.

One said that it had clearly been there for the taking given the large demand for duration in the market and the recent saturation of five and seven year maturities, but others highlighted the level that was achieved.

A syndicate official said that the pricing flat to slightly inside what he considered fair value was unexpected and indicated – even if some orders were inflated because of the deal’s CBPP3 status – that investors are comfortable getting involved with core deals at tight levels and low yields. Others noted the increasing involvement of bank treasuries in longer maturities.

The euro benchmark is the first in the 10 year maturity since a Eu500m 10 year mortgage Pfandbrief for Sparkasse KölnBonn on 7 October at mid-swaps flat, and the first non-German in the maturity since an Abbey Eu500m 10 year at 14bp over mid-swaps on 11 September.

Nordea Bank Finland was described by one banker as an ideal candidate to kick off CBPP3 primary market activity.

“Of all the names that could have been first for CBPP3, this was probably the perfect choice,” he said.

Credito Emiliano (Credem) could give the market its first peripheral test, having this afternoon mandated Barclays, BNP Paribas, Natixis, Nomura and SG for a seven year OBG for launch in the near future.

The next new Eurozone issues, including the Italian deal, are now being eagerly awaited to see how CBPP3 activity evolves. One banker said that Spanish names are in the mix, with Irish supply also possible.

“The telephone lines on the DCM side are running at full steam,” said another banker. “Now, after Nordea has tested the water, I’d expect four, five or six deals by the end of next week.”

Meanwhile, Raiffeisenbank a.s launched a first Czech benchmark in the euro market. Leads Barclays, BNP Paribas and RBI went out with initial price thoughts of the low 30s over mid-swaps for a five year deal, followed by guidance of the 32bp area, before fixing pricing at 32bp on the back of Eu500m of demand, including Eu250m that the issuer will retain.