Compagnie de Financement Foncier yesterday (Tuesday) launched the first three year euro benchmark covered bond since February and the largest euro benchmark since January, and an official at the issuer said the maturity made sense for a variety of reasons.

Ahead of the Eu1.5bn three year deal, the issuer had been monitoring the market and then moved at relatively short notice after the weekend, announcing its transaction on Monday afternoon.

“The market definitely seems to be much more positive,” said Paul Dudouit, head of medium and long term funding at CFF, yesterday afternoon after completing the deal. “After the good figures out of the US last Friday it felt like there was a better tone to the market, and with no bad news having come out of the G7 over the weekend the market it was quite clear that we would be able to achieve a nice transaction, which is why CFF took the opportunity to enter the market with this three year transaction.”

Leads Barclays, BayernLB, Credit Suisse, Natixis and Nykredit went out with initial price thoughts of the 6bp through mid-swaps area, which a lead banker said reflected a new issue premium of 6bp-7bp and hence was in line with the pick-up shown by IPTs on recent Germany supply. He said that in 40 minutes indications of interest were above Eu1.4bn, allowing guidance to be set at 8bp through. The order book then grew to Eu2.5bn.

“Given the strong response from investors, CFF decided to fix the spread at minus 11bp and the size at Eu1.5bn,” said the lead banker. “Given the aggressive spread, some accounts dropped, leaving the book with 85 investors and Eu2.15bn worth of demand.”

Syndicate officials at and away from the leads put the ultimate new issue premium at up to 2bp. While most of those spoken to by The CBR considered the execution successful, one criticised the large move to the re-offer spread, noting that the distance from guidance to re-offer was greater than from IPTs to guidance, although the leads defended the strategy.

“It’s always a topic of discussion with the dealers,” said Dudouit. “Personally, given where the secondaries were trading, I was convinced that we would come through minus 10bp, but in this environment you need to test the market, which is why we perhaps needed this pricing strategy.”

The deal offered a 0.125% coupon and a yield of 0.15% following the sharp back-up in yields, which took most short-dated covered bonds from negative into positive territory once more. It meanwhile offered a 15bp spread versus OATs.

“We had already done five and 10 year issues this year, and it is natural from an issuer’s point of view to also be present in the three year maturity,” said Dudouit. “In terms of new issue premium, in this maturity we paid only an additional 1bp-2bp, whereas in the longer part of the curve new issue premiums are higher, so it was a good maturity for us.

“The feedback on the investor side was positive,” he added. “Central banks outside Europe are looking to CFF paper to invest their currency reserves in. And we still offer a nice spread versus French OATs, which means that it makes sense for investors – central banks, asset managers and others – to invest in CFF paper.”

Central banks and official institutions were allocated 44% of the issue, asset managers 30%, and banks 26%. Eurozone investors took 59%, other Europe 28%, and Asia 13% – a more detailed breakdown of Eurozone participation was not disclosed.