The CBPP3-inspired momentum in the covered bond market appeared to have dried up today (Friday) – for the time being, at least – when demand for a Eu1bn 10 year OP Mortgage Bank benchmark fell short of expectations and pricing was left in the middle of IPTs.

Leads Barclays, Credit Suisse, Pohjola and RBS went out with initial price thoughts of the 4bp over mid-swaps area, then set guidance at the 4bp area, and ultimately priced the deal at 4bp over. Almost all other benchmarks launched since the start of the ECB’s third covered bond purchase programme have been priced at least 2bp inside IPTs, when they have been used, and at times more than 5bp through.

The level of subscription for the deal was also low, even compared with the marginally oversubscribed books of the past week, with the last update on OP’s issue being that the book was approaching Eu1bn, according to syndicate away from the leads. The deal had been announced as a benchmark, which could have allowed for a smaller size than Eu1bn, but a syndicate official noted that Eu1bn has been a minimum standard for its euro benchmarks, with at least its last five having been for Eu1bn or more.

The syndicate official said that the outcome was poor.

“My personal view is that people are just fed up with this central bank-only business,” he said. “At the start of CBPP3 people felt everything would grind tighter on the back of the ECB, but everything has already ground tighter, and there is no fantasy left.”

Another syndicate official agreed.

“Even wanting to be positive, all I can say is that it looks weak,” he said. “I would have thought that plus 4bp was a good starting point – but as an end result? It is difficult to describe it as a success.”

Indeed, the initial price thoughts were even described as generous by some.

The syndicate official said that he already had some doubts about the deal yesterday (Thursday) afternoon when the mandate was announced.

“The market was going slightly sour, and things were getting more difficult regarding size and price expectations,” he said. “Investors are selling in secondary and peripherals are still under pressure.

“Why did they put out a trade for Friday execution? It doesn’t look smart.”

He said that investors were increasingly happy to lock in the year’s gains and close books rather than put their performance at risk, given that the tightening trend of covered bonds had at least for the time being appeared to have come to an end.

Another banker echoed this, noting lower oversubscription levels on deals in other asset classes, too, and suggested that new issue premiums would need to be higher.

However, the first syndicate official said that deals remain feasible for the next couple of weeks, ahead of the holiday season and year-end; it is only pricing and size expectations that need to be revised lower.