Crédit Agricole reopened a Eu500m 20 year issue less than two weeks after its launch to add Eu400m today (Monday), having received reverse enquiries from investors unfazed by volatility in OATs that meant the deal came some 25bp inside the sovereign, notably further than the original issue.

The original Crédit Agricole Home Loan SFH February 2037 issue was sold on 26 January as part of an unprecedented three tranche covered bond benchmark. The 20 year tranche was added mid-execution, alongside long eight and 15 year tranches, on the back of reverse enquiries.

The obligations de financement de l’habitat issue was reopened by sole lead Crédit Agricole this morning with the spread fixed at 25bp over mid-swaps, the level at which the deal was originally priced, for an expected size of around Eu250m.

After just over an hour and a half, the book was closed and the tap size set at Eu400m, taking the deal size to Eu900m.

“It seems to have gone very well and clearly Crédit Agricole have found a point on the curve where there is good demand, with investors asking for this deal specifically twice in two weeks,” said a banker away from the deal. “In a way it is surprising to see, as this comes a long way inside the sovereign.”

The French issuer’s tap was priced around 25bp inside the sovereign, whereas the initial deal was priced just 15bp inside less than two weeks ago, with OATs having widened substantially in the interim.

Rates have backed up across Europe in recent weeks but French government bonds have been hit particularly hard by volatility on the back of increasing uncertainty in the run-up to the country’s presidential election, for which the first round of voting will take place in April. On Tuesday, a Eu750m eight year covered bond for France’s Crédit Mutuel CIC was deemed to have struggled because of such volatility.

Michael Spies, covered bond and SSA strategist at Citi, noted this morning that yield spreads between French covered bonds and OATs have reached their tightest ever levels in all parts of the curve.

A banker close to Crédit Agricole’s deal acknowledged that the demand for the tap was surprising in this context.

“But as we saw 10 days ago and we saw again today, some buyers of this product are not necessarily sensitive to OATs, or at least that is not their main criteria,” he said. “They have cash to invest, they like the coupon that is on offer, and they are just happy to play.

“Yes, there are concerns about France, but there is still money to be put to work for the right names. There is liquidity to be taken there and we have proven it today.”

The lead banker said the tap was launched in response to reverse enquiries.

“We also suspected that some accounts did not have time to react to the initial deal – as we had decided during the process to add the 20 year tranche – even though they had an interest,” he added.

The tap was deemed to have offered a new issue premium of around 2bp, with bankers seeing the 20 year trading at around 23bp, bid, pre-announcement.

“As we are tapping the bond so soon we felt it would be fair to show a little bit of premium and offer the same price as on the initial deal, which is why we fixed the price at 25bp from the start,” said the banker.

Spies said, meanwhile, that the outperformance of French covered bonds versus OATs could continue over the coming months.

“The main reason why French covered bonds outperformed OATs is probably the main characteristic of covered bonds being the low beta product compared to sovereign bonds in most countries,” he said. “The risk premium for holding OATs versus Bunds could rise somewhat further on political risks in Q2.

“And as long as OAT risk premiums don’t fall, we don’t expect a strong correction of spreads between French covered bonds and OATs. In fact, we would not be entirely surprised if French covered bonds continue to outperform OATs in the five year to seven year sector going into the presidential election in France.”