Crédit Agricole reopened the euro covered bond market today (Thursday) after four weeks without a new benchmark, taking advantage of a window of market stability to gather over Eu2.5bn of orders for a Eu1.25bn long six year, with further supply expected to follow possibly as soon as tomorrow.

The new issue is the first euro benchmark covered bond deal since MünchenerHyp sold a Eu750m five year Pfandbrief on 29 July. The German issuer rounded off two weeks of heavy supply, before primary market activity dried up as the traditional European holiday period took effect.

Crédit Agricole had been the only issuer to be active in the euro market during the break, having on 13 August tapped by Eu200m a Eu1bn November 2022 issue.

Volatility resulting from a Chinese stock market crash was then seen as prolonging the lull this week, with market participants speculating that issuers would await more stable conditions before launching new deals, with the 10 year Bund yield also backing up sharply on Tuesday.

A syndicate official at one of Crédit Agricole Home Loan SFH leads BayernLB, Crédit Agricole, Danske, DZ, LBBW, SEB and SG said they had decided yesterday (Wednesday) to launch the deal if markets stabilised, and were encouraged to go ahead this morning after seeing strong sessions in the US and Asia.

“When you looked at the screens this morning, everything was strong and in good territory,” he said. “We all know that it is going to stay volatile for some time, and we are going to have to be ready to act quickly when windows of opportunity open.”

The syndicate official added that the syndicates had pulled the trigger at 07:45 BST in order to be first out of the blocks in case another issuer had opted to move forward.

“We were surprised to see that we were the only ones to brave the market this morning,” he said. “We expected some competing supply, but we had a completely clear market, which boosted the bookbuilding and the final outcome.”

The leads launched the long six year obligation de financement de l’habitat (OH) issue with initial price thoughts of the mid-swaps minus 3bp area. Around an hour after books opened, guidance was set at minus 6bp with orders in excess of Eu2bn.

The spread was then fixed at minus 8bp on the back of orders in excess of Eu2.5bn at around 09:40. The books closed in excess of Eu2.5bn with 104 accounts participating, allowing the issuer to print Eu1.25bn, its stated maximum size.

Syndicate officials away from the leads praised the outcome and execution.

“It’s a great result and a good reopener,” said one. “It confirms the market is back on track and everything we saw earlier in the week were just some speed bumps on the road.”

The syndicate officials said the new issue premium was generous at the initial price thoughts stage, calculating the concession as being around 10bp, citing the issuer’s January 2021 paper as being quoted at minus 15bp, mid, and its January 2022s at minus 14bp. Noting that the final new issue premium was around 5bp, they said this was an appropriate approach.

“It was absolutely the right strategy and it should be applauded,” said one. “A 5bp move may seem too much for some, but it is in line with what you see when the market feels good and some price discovery is needed,” he said.

Another syndicate official, noting that a KFW deal in the SSA space had gone well after adopting a similar pricing approach, agreed.

“These deals show that in this volatile market there is a need to go out with a decent concession, and that if you do your deal can go well,” he said.

The lead syndicate official meanwhile saw the issuer’s January 2021s as being quoted at minus 12bp, bid, while its January 2022s were at minus 11bp. However, he said these deals were trading at a very high cash price, with off-the-run coupons, and are technically squeezed, and are do not provide a good basis for determining the premium.

He said that the syndicates had instead looked at the most recent benchmark French issue – a Eu500m five year from BPCE printed on 16 July, seen as trading at minus 8bp, bid.

“We looked at how the market compares now to the market pre-summer and what kind of new issue premium people would expect in this market and decided that minus 3bp was the right starting point,” he said. “In the end, with a size of Eu1.25bn and a book of over Eu2.5bn, minus 8bp was the right price.”

The issuer could have printed a larger size or further tightened the spread, the lead syndicate official added, but said to do so would have been a mistake.

“In the end this is a fantastic result,” he said. “It confirms the view we had at the beginning that the market is strong, and that the cash is there and people are happy to invest the right money in the right name if the time is right.

“This deal ticked all three of those boxes today.”

Syndicate officials said meanwhile that deals are in the pipeline, with supply likely to pick up considerably after a UK bank holiday on Monday, and suggested that the launch of further issues tomorrow could not be ruled out.

“There are projects,” said one. “Maybe some issuers will use these good conditions today to announce a mandate for a Friday execution, but if not I would certainly expect more supply on Tuesday.”

However, another syndicate official suggested issuers would be more likely to wait for the new week.

“There is a long weekend looming with the UK out on Monday, but from Tuesday, with people returning from their breaks and with issuers still having deals to do, we will see activity,” he said. “It is the season.”