Caffil attracted EUR2bn of demand to a EUR1.5bn 10 year benchmark today (Tuesday), but showed the price of success has risen further still, with a new issue premium of as much as 10bp. Rabobank and DG are set to test sentiment further tomorrow. Finland’s Hypo meanwhile completed a sub-benchmark.

After announcing a mandate yesterday (Monday), Caisse Française de Financement Local (Caffil) leads ABN Amro, BNP Paribas, Commerzbank, Crédit Agricole and Santander went out with guidance of the 6bp area this morning for a benchmark size. Books of EUR1.8bn, excluding joint lead manager interest, were announced after two hours and guidance was revised to the 4bp area, plus or minus 1bp, will price within range, for a EUR1.5bn size. An hour later the spread was fixed at 4bp over, with books closing at EUR2bn, excluding JLM interest.

A syndicate banker away from the leads put the starting new issue premium on offer at IPTs at 11bp-12bp, and 9bp-10bp at re-offer.

“They did pay out heavily versus the comps they sent out yesterday,” he said. “A final NIP of 9bp or 10bp is quite something, but they definitely went for size.”

He and other bankers said that the approach merely reflected prevailing conditions.

“Nothing launched post-Easter has performed at all, not even something successful like the ING, which was almost a quasi-debut,” said one, “which is astonishing. If trades like this don’t perform at the moment, it’s clear that the market needs NIPs of up to 10bp.

“We may not even have reached the end of the pole yet, but if Caffil performs 1bp or 2bp, then maybe we can make do with 7bp or 8bp.”

A syndicate banker at one of the leads noted that the EUR2bn book is the largest since a EUR1.75bn 10 year ING Bank trade 12 days ago.

“Caffil has taken a very fair and consensual approach to pricing, in terms of what they offered at the start,” he said, “and also not squeezing out the last basis point on the final print.

“It is quite courageous of the issuer, with the Eurosystem putting lower amounts into the book, to face up to reality and see that if you want a good and big book you must show value to investors.”

He noted that while the theoretical new issue premium was around 9bp based on Caffil’s outstandings pre-announcement, secondary levels continue to provide only questionable guidance for new issues, with more recent comparable supply a better guide. He noted that ING’s 10 year was now at around minus 3bp, mid, while a HSBC seven year priced a week ago was at minus 7bp, suggesting fair value was a little wider than Caffil’s secondaries implied.

As with other recent supply at elevated levels, Caffil’s secondaries softened upon the announcement of the new issue, widening 1bp-1.5bp in the 10 year part of the curve.

On 9 January Caffil sold a EUR1bn eight year at minus 10bp and a EUR500m 15 year flat to mid-swaps. The most recent French 10 year benchmark was a EUR750m deal for La Banque Postale Home Loan SFH that was priced at 8bp through mid-swaps on 29 January, while Caffil itself sold a EUR750m 10 year in September 2017 at 2bp through.

Commonwealth Bank of Australia paid a new issue premium of around 7bp for a EUR1bn five year benchmark yesterday, pricing the transaction at 5bp over mid-swaps, following guidance of the 7bp area and on the back of some EUR1.2bn of orders. BNP Paribas, CBA and Deutsche Bank were bookrunners on the CBPP3-ineligible deal.

“They took a couple of hours to get past EUR750m, and you wouldn’t expect CBA to do less than EUR1bn, so it didn’t exactly go quickly,” said a banker away from the leads. “I’d say it went average – the pricing was OK.”

It was spoken of favourably versus a EUR500m seven year deal for Singapore’s OCBC that was priced in the middle of guidance of the plus 9bp area on Wednesday and with a similar new issue premium.

A EUR500m no-grow long five year mortgage Pfandbrief for DG Hyp was announced this afternoon, and is expected tomorrow (Wednesday) via DZ, LBBW, NordLB, SG and UniCredit.

A syndicate banker at one of the leads said it should provide a test for how Pfandbriefe can fare with the Eurosystem apparently being less supportive of covered bonds in general in terms of primary market orders. The last German benchmark was a EUR500m 10 year for Commerzbank on Monday of last week (9 April) that was deemed underwhelming, with a last book update of some EUR550m and pricing 2bp inside guidance, at minus 7bp. The DG lead syndicate banker said that the best pricing reference may be a EUR1bn five year for Helaba that was priced at 17bp on 13 March and was today at minus 15bp, mid.

“DG Hyp will give us a further idea of the CBPP3 effect,” he said. “Commerzbank did not respond adequately.”

Rabobank is expected to issue a dual-tranche, eight and 20 year covered bond transaction tomorrow via Crédit Agricole, Deutsche, NatWest, Rabobank and UBS, following a mandate announcement this afternoon.

The leads circulated pre-announcement comparables of Rabobank’s May 2024s at minus 15.5bp, mid, February 2028s at minus 7bp, and May 2032s at -0.9bp, as well as ING April 2028s at minus 3.4bp, ABN Amro January 2033s at plus 3bp, and ABN Amro April 2038s at plus 7.1bp.

The Mortgage Society of Finland (Suomen Hypoteekkiyhdistys, or Hypo) attracted EUR400m of orders, including EUR25m JLM interest, to a EUR250m no-grow five year covered bond today, with leads DZ, Nordea and OP tightening pricing from the 9bp area to guidance of the 7bp area and ultimately a re-offer of 6bp. The deal was launched after a roadshow and an update yesterday afternoon teeing up launch today.

“It went very, very well,” said a syndicate banker at one of the leads. “It’s not the easiest of markets, and one might assume that when it comes to niche names, it is even more difficult. But things were spot on here.

“The pricing of 6bp was at the tighter end of our expectations.”

He put the new issue premium at around 4bp. The leads had circulated comparables including Hypo’s EUR300m June 2024s at 2bp, mid, as well as EUR250m Jun 2022s of Møre Boligkreditt at 2bp and EUR250m December 2022s of Oma Savings Bank at 1bp. Benchmark 2022-2023 outstandings from more established Finnish issuers were seen trading from minus 10bp to minus 5bp.

Germany and Austria were allocated 57% of the deal, the Benelux 29%, others 2%, and the Nordics 29%.

“According to the issuer, they definitely managed to succeed in increasing their reach among non-Scandi investors,” said the syndicate banker.

Photo: Caffil offices