CM-CIC lowered its target when printing a Eu750m eight year covered bond today (Tuesday), with OAT volatility cited as a possible reason for it struggling, while NordLB upsized a tap of a recent Eu500m Pfandbrief to Eu300m, enjoying a positive outcome versus the initial deal.

While yields have backed up across a range of European sovereign markets over recent sessions, French government bonds have been particularly volatile as investors react to developments in the run-up to the country’s presidential election. Yesterday the 10 year OAT yield rose 7bp to peak at 1.12% – its highest level since summer 2015 – before closing at 1.05%.

Crédit Mutuel CIC Home Loan SFH leads Commerzbank, HSBC, JP Morgan and UBS launched the French issuer’s eight year euro benchmark at 9:15 CET this morning with guidance of the 3bp/4bp over mid-swaps area. The leads then said in an update that the deal had an expected size of Eu1bn, with guidance unchanged, before announcing that they had taken over Eu1bn of orders. At 12:50, the size was then set at Eu750m and the spread at 3bp, on the back of books over Eu1bn.

“It seems they were unable to achieve their ambition of printing Eu1bn, and with the spread also not really moving from guidance they have clearly struggled,” said a syndicate banker away from the leads. “They are a good name and it looked like a good approach, so it is something of a surprise.”

Bankers away from the leads said the deal had been priced substantially wider than recent French supply, and estimated that it offered a relatively generous premium. It is the third French benchmark covered bond in the eight year part of the curve this year, following a Eu500m issue for La Banque Postale, which was priced at mid-swaps minus 2bp on 16 January, and a Eu1bn April 2025 issue for Crédit Agricole last Wednesday, which was priced at minus 1bp and sold as part of a three tranche deal.

With bankers citing CM-CIC June 2024s at minus 5bp, bid, and April 2026s at 1bp, and seeing La Banque Postale and Crédit Agricole’s deals trading a couple of basis points inside re-offer, CM-CIC’s deal was deemed to have offered a new issue premium of around 5bp.

“The starting point was perfectly fair, going by secondaries,” said a banker away from the leads. “It’s where I would have started, and I am surprised that they were not able to go tighter.”

Although rates were more stable today than yesterday, OATs continued to fluctuate, and bankers attributed CM-CIC’s difficulties to this moving target.

“The big underperformance in the OAT makes it very difficult, and in eight years it is quite steep in OAT terms,” said one. “In the end they are coming around 5bp inside the eight year OAT, and this outcome reflects the poor relative value.”

Another banker away from the leads said the issuer had nonetheless done well to get its deal away in challenging conditions.

“Obviously they didn’t get as much demand as they would have liked, but to print a deal this far inside the sovereign in what is far from an ideal market for French issuers is a decent result,” he said.

NordLB leads Crédit Agricole, HSH Nordbank, Natixis, NordLB and UniCredit reopened the German issuer’s Eu500m January 2027 issue this morning with the spread fixed at 3bp through mid-swaps, for a suggested tap size of Eu250m. The size was ultimately set at Eu300m, on the back of over Eu370m of orders.

The original issue was priced at minus 3bp on 9 January and was seen trading at around minus 4bp, bid, implying 1bp of new issue premium. When the first tranche was sold amid a flurry of issuance in the second week of market activity it was only marginally described, with the final book standing at over Eu500m. Bankers away from the deal said it was unusual that the deal had been reopened so soon, and had been met with substantial new demand just three weeks later.

“We thought that the deal got a little bit lost in the tonnes of supply that we had at the time, also coming after quite a bit of Pfandbrief supply, and suffered a bit because of that competition,” said a syndicate banker at one of the leads.

Three other euro benchmark covered bonds totalling Eu3.25bn were issued on the day NordLB came to market, and four benchmark Pfandbriefe totalling Eu2.5bn had been sold in the previous week.

“A few weeks later, the deal has performed on the secondary and the market has calmed down a bit, so we thought there was a chance for them to get additional demand,” said the lead syndicate banker. “The outcome has indeed proven that dynamics are now better for NordLB than at the time of their first transaction.”

Today’s deals were the first benchmark covered bond supply since Crédit Agricole’s three-trancher last Wednesday. Bankers said further supply is likely this week, in spite of the response to CM-CIC’s deal, with some issuers said to be considering deals with the start of the new month tomorrow (Wednesday).

Photo credit: Ji-Elle/Wikimedia Commons