A Eu1bn eight year benchmark for Crédit Agricole Home Loan SFH today (Tuesday) that attracted Eu1.3bn of demand and was priced in the middle of guidance at 2bp through mid-swaps reflected the weaker market sentiment of the past week, said syndicate officials.

Leads BayernLB, Crédit Agricole, Natixis, RBC, RBI, Santander and Société Générale went out with initial price thoughts of the mid-swaps flat area, then set guidance at mid-swaps minus 3bp-1bp on the back of a book of over Eu1bn. The spread was then fixed at 2bp through and the ultimate book totalled Eu1.3bn with over 60 investors, for a deal size of Eu1bn.

A syndicate official away from the leads said that it looked similar to a Eu750m long 10 year for BPCE SFH that was priced at 1bp over mid-swaps on Thursday and was only marginally oversubscribed. That represented a come-down from deals that were typically around three times oversubscribed and priced inside secondaries in the preceding two weeks.

“It’s solid but unspectacular,” said the syndicate official. “Two weeks ago it would have easily priced at 4bp through.

“The environment has definitely changed to the extent that we have to acknowledge that for the time being the punchbowl has been taken away.”

Another syndicate official away from the leads said that, after getting carried away on the back of CBPP3’s announcement and launch, investors had revised their expectations as to how tight covered bonds will trade in the near future.

“It’s a good deal,” he said, “but it reflects where the real limits are.”

A syndicate official at one of the leads noted that the issue is the tightest eight year benchmark covered bond since the onset of the crisis and said that the new issue premium was minimal, given Crédit Agricole January 2022s bid at 5.5bp through on an i-spread basis and July 2025s at minus 1bp before the new issue was announced.

He said that there had been some spread sensitivity in the book as a result of the historically low spread level and also the soft bullet format, which he noted is the first from Crédit Agricole and also the first from any SFH issuer. He said the pricing for the issuer compared favourably with that achieved by BPCE SFH last week and argued that a Eu500m 10 year BNP Paribas Home Loan SFH deal that was priced at 3bp through mid-swaps on 4 November was not comparable given the smaller size of the trade and “limited contribution of real money accounts in absolute terms”. According to the leads, real money accounts contributed nearly 60% of the distribution on Crédit Agricole’s deal today.

“The approach taken by the issuer was to not squeeze the last basis point, but rather to price right in the middle of the spread range to satisfy everyone,” he said. “With CBPP3 now active in primary markets in size, the bookbuilding approach has changed.

“Issuers have to choose either size or price, and can’t take both. This is especially true as investor fatigue begins to set in for the highest quality covered bond issuers.”

He also noted that SSA paper is competing with tightly priced covered bonds, with the new issue coming at 3bp through OATs and, for example, a Eu850m 10 year Dexia Crédit Local government-guaranteed issue available today at 34bp over mid-swaps.

A syndicate official said that he expects to be launching a core deal tomorrow, while separately a German issuer is said to have been eyeing the market.