CFF issued the longest-dated negative-yielding euro benchmark covered bond today (Monday), attracting over EUR1.5bn of orders to EUR1bn eight year obligations foncières, which was also the first non-German deal with a negative yield this year. UniCredit (HVB) is expected with a five year tomorrow.

Compagnie de Financement Foncier (CFF) leads ABN Amro, Barclays, CaixaBank, JP Morgan, Mediobanca, Natixis and Nykredit opened books with guidance of the 8bp over mid-swaps area for the euro benchmark-sized eight year obligations foncières. An hour and a half later the leads reported books exceeding EUR1bn, excluding JLM interest, and after close to three hours guidance was revised to 6bp+/-1bp, WPIR, with the books above EUR1.35bn, including JLM interest, and the leads noting that many accounts were still to revert. After almost four hours the spread was ultimately set at 5bp and the size at EUR1bn on the back of over EUR1.5bn of demand.

A syndicate banker away from the leads said the deal looked “very solid”.

“Three basis points tightening through the process seems to be what we expect at the moment,” he added, “so it looks reasonable and the book held together on the final price revisions.”

A syndicate banker at one of the leads said that the deal went smoothly, providing further evidence that there is investor demand for negative yielding benchmarks.

“It’s a nice deal and it’s set a good ballpark on what kind of new issue premium you need to get a deal done at the moment,” he said. “A lot of market participants were watching to see how the new reality is being adopted by investors, and the final book at EUR1.5bn tells you that there is definitely good appetite – however, it’s nothing like what we saw pre-summer, where you’d see EUR3bn-EUR4bn books – I guess those days are over.”

Syndicate bankers at and away from the leads put the new issue premium at around 3bp.

The transaction was priced above par with a coupon of 0.01% to yield minus 0.326%.

The lead banker said many investors are continuing to eschew covered bonds due to the low yields, even if CFF’s trade comes after three and four year Pfandbriefe for Berlin Hyp and MünchenerHyp, respectively, that were priced at even more deeply negative yields below the ECB deposit rate.

“Everybody in Q2 was buying covereds, but now you just have a few guys,” he said. “Today some told us that they are not buying because the outright yield is too low for them.

“It depends where they see the market going – you can either buy it on an asset swap basis from a relative value perspective, or you can buy it outright with the idea that yields aren’t going up.”

Another syndicate banker away from the leads said the trade provided an interesting test of demand in what might now be considered the belly of the curve, with the two German deals having demonstrated demand for the short end, and eight years being well short of maturities necessary for core issuers to offer positive yields.

“It was priced fairly and a good outcome for the issuer,” he said, “but the pace of demand was not that fast. There are other issuers eyeing eight or even 10 year deals, and this shows that this part of the curve can work, but that there is perhaps less strong demand.

“Investors would also have been mindful that CFF has done more than EUR1bn before, so may not have wanted to inflate their orders, so this provides quite a realistic picture of their appetite.”

He noted that the pick-up of around 18bp-19bp over OATs was relatively high, and would have proved attractive to French accounts in particular.

UniCredit Bank AG (HVB) announced a mandate for a benchmark-sized five year mortgage Pfandbrief that is expected tomorrow (Tuesday) via Commerzbank, DZ, Helaba, Santander and UniCredit. A syndicate banker away from the leads saw fair value at around minus 3bp and suggested the leads could follow recent examples and set initial guidance some 5bp back from this, at around 2bp, or possibly go even wider to ensure a sizeable success.

Bankers said other names are in the frame for the coming days.

“I could think of two or three other names eyeing up this week for issuance,” said one. “Some issuers are seeing that conditions are good, and we are starting a new month, so this is worth considering before the ECBC conference takes place next week.”