Caffil sold the tightest non-German 10 year benchmark in almost a year today (Monday), a Eu750m 10 year obligations foncières deal priced inside fair value on the back of over Eu1.75bn of orders. It ends a 12 day hiatus and further supply is awaited, even if low needs and other options could stymie supply.

The new issue for Caisse Française de Financement Local (Caffil) is the first euro benchmark covered bond since 6 September, when compatriot CM-CIC sold a Eu1.25bn 10 year issue. No euro issuance ensued as market participants convened at industry events in Barcelona last week.

Leads Deutsche Bank, ING, LBBW, NatWest Markets and Santander launched the Eu750m no-grow 10 year obligations foncières with guidance of the mid-swaps plus 3bp area this morning. After around one hour and 10 minutes, the leads announced that the books had exceeded Eu1.25bn excluding joint lead manager interest.

Guidance was later revised to flat, plus or minus 2bp will price within range, with books in excess of Eu1.65bn excluding JLM interest. The spread was then set at minus 2bp on the back of books over Eu1.75bn excluding JLM interest.

“It was a very swift execution and, even though I don’t like the phrase ‘textbook’, this really was textbook,” said a syndicate banker at one of the leads. “We looked at the market this morning and saw benign conditions with no real competing supply, so got started straight away.

“We got really good momentum – with the book peaking at around Eu1.9bn – and we were able to work on the spread, pricing at a negative new issue concession versus the issuer’s curve.”

The new issue was deemed by bankers at and away from the leads to have been priced flat to or even slightly inside of fair value, with bankers seeing Caffil April 2026s at minus 4bp, mid, January 2027s at minus 3bp, and October 2028s – an older, higher coupon issue – at 2bp.

The deal is the tightest non-German benchmark covered bond with a maturity of 10 years or over since October 2016, when Crédit Agricole priced a Eu500m 10 year issue at 7bp through mid-swaps.

“Caffil moved quickly to be the first out of the blocks and got a strong transaction,” said a syndicate banker away from the leads. “Pricing of minus 2bp for a 10 year speaks for itself.”

The lead syndicate banker said the strong reception enjoyed by the deal was due in part to a 10bp rise in the 10 year swap rate since last Monday, with a yields rise attributed to an easing of geopolitical concerns. The deal was priced with a coupon of 0.75% to yield 0.868%.

He added that strong performance in CM-CIC’s recent 10 year, which was priced at flat to mid-swaps and seen this morning at around minus 3bp, mid, will also have supported demand.

The new issue is Caffil’s fourth benchmark covered bond of the year, with the last a Eu750m 15 year in May.

The euro primary market is expected to remain relatively busy this week, with conditions still highly supportive and the window relatively clear until the onset of European reporting periods in two weeks.

PKO Bank Hipoteczny will conclude a European roadshow today ahead of a potential euro benchmark covered bond issue with an intermediate maturity, which is expected this week, although a syndicate banker at one of leads HSBC, PKO Bank Polski, LBBW and UBS said the deal is unlikely to be launched tomorrow.

Bankers said other issuers – core names in particular – are monitoring the market this week and considering launching deals in the wake of the Barcelona events.

“However, I don’t think it will be a flood of supply, because other markets are so good and for every covered bond you will probably have four or five senior or capital trades,” said one. “Issuers are well-funded now so it is just a question of whether they want to use these good conditions to carry out pre-funding now or if are happy to wait and see how things develop.”

Another syndicate banker agreed.

“Caffil’s deal is a strong message that the market is wide open, even in 10s, which were a slightly challenging maturity a few weeks ago,” he said. “All doors are open, now it is just a case of trying to push issuers through.”

An FOMC rates decision on Wednesday is seen as the only scheduled event that might interrupt the issuance window this week.

“I wouldn’t advise someone to go for a two day execution, announcing Wednesday for pricing Thursday, but I think we should have a full week available for issuance with no worries,” said a syndicate banker.

Photo: SFIL/Caffil offices