The long end is back on the cards having defied pre-Autumn expectations this week upon unforeseen rate moves, as Commerzbank today (Friday) tapped by Eu250m a 10 year issued only last month, and after diverse 10 years from Caffil and Santander Totta attracted an aggregate Eu5bn of demand.

Although the euro covered bond market was reopened after the summer break by a succession of long-dated German benchmarks – including Commerzbank’s original issue – bankers had maintained that the five to seven year range would be the sweet spot for supply. This was borne out by subsequent intermediate-dated deals at the start of September, but after a Eu1.25bn 10 year for CM-CIC on 6 September hinted at long end possibilities, the market was this week dominated by 10 year supply, as typified by today’s Commerzbank tap.

This morning, leads ABN Amro, BBVA, Commerzbank, NordLB and UniCredit reopened the Eu750m August 2027 mortgage Pfandbrief at 8:58 CET with the re-offer spread fixed at mid-swaps minus 13bp for a tap size of Eu250m. At 9:40, the leads announced that orders had exceeded Eu450m, including Eu120m joint lead manager interest, with books closing at 10:00.

“It was a straightforward trade,” said a syndicate banker at one of the leads. “Even though it was priced very close to the mid market, it was nevertheless a very strong book.”

The original issue was priced on 17 August at minus 11bp, and seen trading at minus 13.5bp, mid, pre-announcement.

The final book stood at over Eu520m including Eu120m JLM interest with 26 accounts. Central banks and official institutions were allocated 54%, banks 40%, and fund managers 6%. Accounts in Germany took 71%, Asia 14%, Austria and Switzerland 11%, Spain 2%, Benelux 1%, and the UK 1%.

Bankers said the prediction that the intermediate part of the curve would be the sweet spot after the summer break was based on an assumption that rates would not change significantly.

“Just look at rates markets – take the Bund future as an example, and you see it has dropped more than two big figures in the last two weeks,” said a syndicate banker at one of Commerzbank’s leads. “Yields have risen constantly at the long end, so that helped a lot to get longer tenors back on the cards.”

He added that the overall market environment is sufficiently strong that potentially riskier trades, such as 10 year issues, will work nicely.

“There is a lot of liquidity out there, and we probably slightly underestimated the overall investment pressure on the buyside,” he said. “We knew the market would be good, but not this good.”

Another banker agreed, but predicted that trades would continue to attract solid demand across the curve, noting the success of a Eu500m short seven year issue for PKO Bank Hipoteczny yesterday (see separate article).

“All options are on the table,” he said.

The Eu750m 10 year obligations foncières for Caisse Française de Financement Local (Caffil) reopened the euro covered bond market on Monday after 12 days without supply. The deal was priced by leads Deutsche, ING, LBBW, NatWest and Santander at mid-swaps minus 2bp, down from initial guidance of the 3bp area, with the final book standing at almost Eu2bn, including 66 accounts.

The deal is Caffil’s tightest 10 year benchmark covered bond and its first of any maturity to be priced inside its secondary curve, according to the issuer.

“We had the confirmation throughout 2017 of the investor’s trust in Caffil’s signature, as a regular and reference issuer on the European covered bond market,” said Philippe Mills, CEO of parent SFIL and chairman of the supervisory board of Caffil. “This last public issue of the year of Caffil met a very strong and diversified investor demand, and was executed at excellent financial conditions; it reflects SFIL group’s commitment to raise long-term financing at the best possible financial conditions for the benefit of French local public sector and exporters, to fulfil the missions assigned by the French state.”

On Tuesday, Banco Santander Totta followed with another 10 year, a Eu1bn obrigações hipotecárias. Leads Barclays, Credit Suisse, Natixis, Santander and SG priced the deal at 48bp over mid-swaps on the back of Eu3.25bn of orders, having opened books with guidance of the high 50s area.

Stadtsparkasse München also chose the 10 year maturity when issuing its sub-benchmark debut yesterday (Thursday), a Eu250m mortgage Pfandbrief.

Totta’s deal was seen trading around 11bp inside re-offer today, while Caffil’s 10 year had also performed 2bp-3bp.

“The performance bodes well,” said a syndicate banker. “There are a few longer term projects in the pipeline, but given the evident strength of the market I am sure there will be a few deals to come next week.”

NN Bank and ASB Finance Limited announced mandates yesterday for euro benchmark intermediate-dated issues, which will follow roadshows commencing next Monday and on 2 October, respectively.