Credito Emiliano today (Thursday) priced a Eu750m seven year OBG 5bp through its curve on the back of a Eu2.9bn book, demonstrating how CBPP3 is forcing even the most cautious investors into trades, according to a lead banker. Sabadell has meanwhile mandated a seven year.

Banco Sabadell has mandated Barclays, Commerzbank, JP Morgan and Lloyds for what is set to be the first benchmark Spanish covered bond since a Eu1bn 10 year BBVA issue in June.

The Italian deal – the first since July – is only the second benchmark eligible for the European Central Bank’s third covered bond purchase programme to have been launched since the programme began, after a Eu1bn 10 year for Nordea Bank Finland yesterday.

Leads Barclays, BNP Paribas, Natixis, Nomura and SG opened book on the new Credem issue with initial price thoughts of the 30bp area, then revised guidance to the 27bp area, before fixing the spread at 25bp over on the back of a Eu2.9bn order book, according to a lead syndicate banker.

A syndicate official away from the leads said that the 30bp area was “eye-catching” and appropriate to get momentum. He said that while he had expected the level to be tightening, the ultimate pricing was impressive.

The lead syndicate banker put the 25bp level 5bp inside Credem’s curve. He said that the real money component of the book was “extraordinarily high”.

“The comfort that the covered bond purchase programme offer the market is enough to give even the most cautious investors the confidence to come in,” he said. “Indeed it is not too strong to say that CBPP3 is forcing investors to come into trades – it really is.”

Market participants have been keenly watching the outcome of new issues to gain an insight into the strategy central banks are adopting for CBPP3, but lead managers have not been directly disclosing any figures on their participation.

The lead syndicate banker said that interest from Eurosystem central banks under CBPP3 came in immediately that books were opened with IPTs this morning, with the order being at re-offer. He said that regarding allocations, they received “no special treatment”.

Central banks and official institutions – including government agencies, for example – were allocated 29.8% of Credem’s deal, although this included not only CBPP3 buying but also by institutions away from the purchase programme. Alongside this distribution, investment managers were allocated 46.5%, banks 15.6%, and insurance companies 8.1%.

Italy was allocated 29.2%, Germany and Austria 33.2%, France 15%, the UK and Ireland 7%, the Nordics 4.7%, Asia 4%, Switzerland 3.5%, and others 3.4%. CBPP3 buying is said to be being channelled through the national central bank of the issuer, and on Nordea Bank Finland’s deal yesterday the Nordics were allocated 17% – second to Germany and Austria with 49% – with the national central banks’ activity also understood to be in line with their respective sizes.

Central banks and official institutions were allocated a 22% share of Nordea’s Eu1bn deal and, according to a lead syndicate banker, this was a greater share than their share of orders. This implies that their total orders were less than 22% of the Eu3.7bn book, so less than Eu814m. Furthermore – again – the central banks and official institutions component includes distribution to European central banks but not under the auspices of CBPP3, and also distribution to Asian central banks and official institutions – total allocations to Asia were 7%. The lead syndicate banker said “this reduces by quite an amount” the potential CBPP3 share – suggesting that it is below some very large numbers that were touted in the market in the past 24 hours.

Another lead banker on Nordea’s deal said that CBPP3 interest was placed early on, during the IPTs phase.

“They don’t seem to be waiting to see if they will be a driving force or not,” he said.

Nordea priced its Eu1bn 10 year at 1bp over mid-swaps, after IPTs of the 6bp area. Bankers away from the deal highlighted, but did not criticise, the sharp move from IPTs to re-offer.

“There was no ambition to print at 1bp,” said the lead banker. “We were discussing something in the area of 4bp, with the obvious hope to price it on the tight side, at 3bp. The 6bp area was therefore a level where we could gain sufficient momentum and then be able to tighten 2bp-3bp.

“But during the process we had to constantly adjust this. As the book was growing and growing and growing, and because the issuer had decided to keep the size at Eu1bn, we had the chance to tighten in much more than expected.”

He said that the involvement of CBPP3 in size and at re-offer gave and will give the issuer the power to drive pricing tighter if it chooses to do so.

“In this case the issuer was very careful to say right from the start that it wanted a success leaving aside the Eurosystem, and that the price should be determined on the basis of demand from other investors.

“But I cannot guarantee that it will not be a driving force. It is up to the leads and the issuer to see what is possible with and without the ECB and they could be aggressive.”

Meanwhile, he noted that investors are of course conscious when placing their orders – in terms of pricing and size – of the impact that CBPP3 is having.

“There were investors who said that they would not like to see a single investor – i.e. the ECB – having a large portion,” he added, “but people were expecting the ECB to drive pricing.”

He said that, however, bank treasuries were a key driver of Nordea’s transaction.

“For bank treasuries, a positive spread on a Level 1 LCR asset is obviously something that is very hard to find these days, and they came in massively,” he said.

Another notable part of demand was trading accounts, he added.

“Traders are losing a lot of inventory to the ECB,” he said. “It’s a safe bet knowing that there is that backstop bid, and they are buying anything they can get their hands on.

“They came in in large size, but were of course the ones who didn’t get the bonds in the end.”