A EUR500m seven year deal for Crédit Agricole was deemed to have struggled today (Wednesday), coming 1bp inside initial guidance on the back of slim oversubscription, with any post-summer momentum having rapidly dissipated. RBC is nevertheless slated to follow tomorrow.

Crédit Agricole Public Sector SCF leads ABN Amro, Crédit Agricole, Lloyds, RBC and Santander launched the EUR500m no-grow seven year obligations foncières with guidance of the mid-swaps flat area this morning. The spread was ultimately set at minus 1bp with books “well above” EUR500m. Books remained at around that level post-reconciliation.

“It seems to have struggled,” said a syndicate banker away from the leads. “Many deals across the markets have struggled for momentum over the last week, but this looks like one of the weaker ones.”

A syndicate banker at one of the leads said the deal had progressed smoothly and that the book was good quality with a good degree of granularity, but he acknowledged that the volume of demand was not “overexciting”.

“This result is in line with what we are seeing elsewhere in covereds and also across the bank capital structure – momentum is obviously slowing down and performance lacking in the secondary market,” he said. “There was a clear advantage to being the first movers last week because supply is really back in force now, as there were 15 euro tranches last week across euro FIs and we are moving down the credit curve and up in terms of beta.

“The reason Crédit Agricole is coming this week and not last week is due to logistical and technical aspects and not due to the issuer not recognising the likelihood that things deteriorate.”

Syndicate bankers at and away from the leads said the deal paid a new issue premium of 3bp-4bp, seeing Crédit Agricole Home Loan SFH July 2025s at around minus 7bp, mid, and Crédit Agricole Home Loan SFH August 2028s at around minus 1bp.

A syndicate banker away from the leads suggested Crédit Agricole’s new issue struggled because it was marketed with less generous initial guidance than French covered bonds issued before the summer break, noting that a EUR1.5bn long 10 year issue for Crédit Agricole Home Loan SFH on 3 July – the last French benchmark – offered an initial 8bp premium and paid a final premium of 5bp. French benchmarks issued across the curve in May and June by the likes of CFF, SG and Caffil also adopted a similar pricing strategy.

“Some of those issuers truly paid up to get their deals moving,” he said. “This may have been one of the reasons why today’s transaction didn’t really take off.”

However, the lead syndicate banker said the starting point was justified given the deal’s limited size.

“We designed the pricing approach on the back of the EUR500m no-grow size with a view to pricing at around minus 2bp,” he said. “Obviously we could have done what French issuers did before the summer break and got a much bigger book, but this time we judged that starting at flat was enough to deliver what we wanted to deliver.

“Nevertheless, we decided to tighten just 1bp and not 2bp or 3bp because we did not want to push it too far.”

The lead syndicate banker suggested some investors might have sat out of the deal because Crédit Agricole had so recently been active in the market with a large, EUR1.5bn deal.

Despite the response to today’s deal and modest demand for some other trades launched since the euro covered bond market’s reopening last week, syndicate bankers are confident that market conditions will remain relatively constructive for further supply and suggested the Crédit Agricole’s execution is not a cause for concern for all potential issuers, pointing to the positive reception enjoyed by a DekaBank sub-benchmark today.

DekaBank announced a mandate yesterday (Tuesday) afternoon for its EUR250m seven year public sector Pfandbrief, via leads Commerzbank, Deka and Natixis.

The deal was launched this morning with guidance of the mid-swaps minus 6bp area. Guidance was subsequently revised to the minus 8bp area, plus or minus 1bp, with books over EUR500m. The spread was then set at minus 9bp, less than two hours after the deal was launched.

“This trade went well, it clearly had good momentum and was done rather quickly,” said a syndicate banker away from the leads.

Royal Bank of Canada (RBC) is set to follow after having announced a mandate this afternoon for a seven year euro benchmark covered bond, which is expected to be launched tomorrow. ABN Amro, Commerzbank, Danske, RBC and SG have the mandate.

The Canadian deal is set to be the first post-summer issue not to be a EUR500m no-grow benchmark.

Meanwhile, DZ Hyp, which was formed by a merger of DG Hyp and WL Bank on 1 August, announced a non-deal related fixed income investor roadshow yesterday afternoon to “inform investors about the new set up”.

Following the merger of the two Pfandbrief issuers, which were both part of the DZ Bank Group, DZ Hyp is now the largest German Pfandbrief issuer in terms of outstandings.

WL Bank’s last euro benchmark Pfandbrief was a EUR500m 10 year issue in March, while DG Hyp’s was a EUR500m nine year in June.

The roadshow will run from 14 to 25 September.