Compagnie de Financement Foncier issued a Eu1.5bn long five year OF today (Tuesday) and tightened the spread 6bp on the back of Eu3.25bn of orders to price inside its curve, with demand seen supported by “the Macron effect”, a recent lack of five year paper, and a sizeable pick-up over OATs.

After announcing a mandate yesterday (Monday) afternoon, Compagnie de Financement Foncier (CFF) leads BBVA, Crédit Agricole, Deutsche Bank, Natixis and UniCredit launched the September 2022 obligations foncières this morning with guidance of the flat to mid-swaps area.

Guidance was later revised to the minus 4bp area on the back of books over Eu2bn, with more than 65 accounts participating. The spread was then set at minus 6bp and the size at Eu1.5bn on the back of books over Eu3.25bn with over 100 investors in.

“That 6bp between initial guidance and the final spread is a big, big move,” said a banker away from the leads. “Even accounting for the Macron effect, it’s impressive.”

A syndicate banker at one of the leads said the tightening was justified by the demand they received.

“For a French covered bond, a final book of Eu3.25bn is enormous,” he said. “Clearly that in itself, as well as the quality of the book, warranted a move tighter than the 4bp or 5bp that has been the norm this year.”

The deal is the tightest priced French benchmark since October, when Crédit Agricole priced a Eu500m 10 year OF at minus 7bp.

Bankers said CFF’s deal had been priced around 1bp inside fair value, seeing CFF March 2022s at minus 5.5bp, mid, and November 2022s – which they noted had a higher coupon – at around minus 5bp.

The new issue was priced 1bp inside a Eu1bn seven year for Caffil last Wednesday, which was sold as part of a dual-tranche offering alongside a Eu750m 15 year tranche.

“It’s a very impressive price, but I think many investors will have been more concerned by the spread versus the sovereign,” said another syndicate banker. “That is one of the key drivers of this trade.”

In the wake of the first round of the French election, double-digit tightening in OAT spreads and more modest tightening in French covered bonds of around 4bp substantially enhanced the relative value of covered bonds, supporting subsequent benchmark offerings from Crédit Agricole and Caffil.

After Emmanuel Macron’s victory for in the second round of the French presidential election on Sunday, there were no sizable moves in OAT and French covered bond spreads, with the anticipated result already priced-in and with yesterday a public holiday in France. Bankers noted that French covered bonds have nevertheless maintained their recent relative value gains, and the new issue was seen as offering a pick-up of around 24bp versus the sovereign.

The deal is only the second benchmark covered bond from France to have a five year maturity this year, following a Eu1bn straight five year for Axa Bank Europe SCF on 7 March. Most French issuers have focussed on maturities of seven years or longer, and bankers said this relative undersupply in the five year part of the curve was another driver of the strong demand for CFF’s new issue.

“There’s been a lot of interest in the long end recently, especially in France given the new sovereign pick-up,” said a banker away from CFF’s leads. “But five year deals are the bread and butter of a lot of investors, so this was always likely find good demand, especially given the recent focus on longer maturities.”

A syndicate banker at one of the leads agreed.

“Even in other core jurisdictions, there has been a clear shortage in five year supply,” he said. “As we saw today, investors are really keen to get their hands on this paper.”