Caffil today (Tuesday) sold the longest-dated euro benchmark from a core issuer this year, a €750m no-grow 20 year that attracted over €1.6bn of demand. Hamburger Sparkasse issued a €500m eight year deal, while Santander Consumer Bank is set to launch its first benchmark Pfandbrief.

After the mandate announcement for Caisse Française de Financement Local (Caffil) yesterday (Monday), leads Barclays, Citi, LBBW, Natixis and NordLB this morning went out with guidance of the mid-swaps plus 10bp area for the €750m no-grow 20 year obligations foncière. After around 45 minutes, they reported books in excess of €850m, excluding JLM interest, and after around an hour and 55 minutes, the guidance was revised to 6bp+/-1bp, WPIR, on the back of €1.5bn of demand, including €100m JLM interest. The deal was ultimately priced at 5bp on the back of a book over €1.6bn, including €100m JLM interest, pre-reconciliation.

Sami Gotrane, managing director, treasury and financial markets, at Caffil parent SFIL, said the issuer was pleased with it first transaction of the year.

“Investor demand was exceptionally strong for a 20 year transaction,” he said, “with more than €1.6bn in orders after just two hours.”

Gonzague Veillas, head of funding and treasury at SFIL, said that in the current market, many investors are clearly looking for longer duration.

“The focus of our activity is on financing long dated assets and issuing a 20 year benchmark fits well into our ALM needs,” he added.

The new issue was priced to yield 0.381%.

A syndicate banker away from the leads said the longer maturity reflected the prevailing level of yields and the need for issuers to go longer.

“It’s amazing how yields have rallied 20bp to 25bp over the past few weeks,” he said, “but there’s still a lot of demand in the long end, even though we’re at much lower levels now.”

The deal demonstrated a significant proportion of the investor base is buying on a spread basis, according to the syndicate banker.

“As long as there’s a NIP relative to the curve,” he added, “then these long end deals are able to get done quite successfully.”

By capping the size at the start, he said, the issuer was very clear regarding what it wanted to achieve, allowing it to generate as much price tension as possible throughout the bookbuilding process. He saw fair value at plus 3bp, implying 2bp of new issue premium.

“It’s slightly higher than what you would see in shorter tenors,” he added, “but this simply shows that in the long end, you need to pay up a bit more to compensate for the smaller pool of investors that look at that part of the curve and the rally we’ve seen in yields.”

Another syndicate banker away from the leads said the deal went surprisingly well, as he expected it to start and ultimately land wider than 5bp.

“When you look at overall risk sentiment and shrinking yields,” he said, “that’s kind of a hint that investors are demanding more yieldy material going beyond 10 years.”

He said that as a result of this deal, other core names could eye up longer-dated issues.

“There’s clearly still a lot of cash out there that needs to find investment opportunity,” he said, “so for diversification, investors can add some of these bonds to their portfolios, and what’s more, it’s high quality stuff as well.”

He added the possibility of the coronavirus continuing to damage market conditions could have swayed investors towards the trade.

“We don’t know everything about this virus yet,” he said. “Some could have been of the opinion that they may not be able to gather these yields in say, two weeks from now, so it’s better to buy in now.”

A syndicate banker at one of the leads said the deal execution went smoothly, with a more than twice subscribed order book and a “minimal” new issue premium he put at 1bp, based on its outstanding June 2038s at plus 2.5bp.

“For this tenor, 1bp of NIP is an outstanding outcome,” he said, “and it went pretty well.

“In the end, we offered a nice pick-up over German Bunds,” he added, “and a slight pick-up on OATs.”

According to the issuer, demand from Germany and Austria, and from asset managers and insurance companies was strong.

The SFIL group has total funding needs for the year of €5bn-€7bn, including €3.5bn-€5.5bn of covered bond issuance via Caffil.

“We plan to come back to the ESG market with a green or social transaction via SFIL or via Caffil later on this year,” said head of investor relations Ralf Berninger.

After announcing the mandate of Hamburger Sparkasse (Haspa) yesterday, leads BayernLB, DekaBank, Deutsche, Hamburger Sparkasse and UniCredit went out this morning with guidance of the mid-swaps plus 2bp area for the €500m no-grow eight year trade. After around an hour, books were reported as being over €750m, including €30m JLM interest. The spread was ultimately set at flat to mid-swaps on the back of over €800m of demand, including €30m JLM interest.

A syndicate banker at one the leads said that overall the deal was a good outcome for the issuer, pricing with just 1bp of new issue premium.

“We hoped for stronger demand to land us in the negative territory,” he said, “but the issuer decided not to stretch it too much and finally set the re-offer spread at flat to treat investors fairly.”

He said unlike other recent German euro benchmarks, they did not have sufficient pricing power to move the spread 3bp-5bp. ApoBank, for example, on Thursday sold a €500m nine year mortgage Pfandbrief at minus 1bp through mid-swaps following initial guidance of the 3bp area on the back of over €1bn of demand.

The lead banker saw fair value for the trade at minus 1bp, based on the issuer’s outstanding May 2024s at minus 2.5bp, and Helaba January 2026s, LBBW July 2027s and Berlin Hyp May 2029s trading in the range of minus 2bp to minus 3bp.

“The credit differential between those is at least 1bp,” he said, “leading to fair value in the minus 1bp to minus 1.5bp territory.”

A syndicate banker away from the leads said though the book size was “not a huge blow-out”, for a €500m no-grow, it was still a good level of oversubscription.

“They priced with 1bp of new issue premium,” he said, “so well done to them.”

Santander Consumer Bank AG is planning a debut euro benchmark covered bond issue, a €500m no-grow 10 year transaction announced today with Citi, HSBC, LBBW, Santander and UniCredit as leads.

A syndicate banker away from the leads said the deal was set to be another example of smaller issuers taking advantage of the CBPP3 bid.

“This is exactly why the purchase programme was introduced,” he said, “to provide opportunities for smaller names to achieve attractive levels of funding and a decent amount of size – I suppose that’s why they’ve gone down the benchmark route.”

Although the issuer does have an outstanding €500m 2024 issue, this was launched as a sub-benchmark in 2017 and the €250m was doubled in size through a tap in 2019.

Another syndicate banker said the issuer could rely on at least €200m of Eurosystem orders, limiting execution risk.

“That’s €300m left, which they’ve already done a couple of times in sub-benchmark format,” he said.

He added that some issuers are mulling long-dated issuance over the course of the week.

“There could be a surprise tomorrow,” he said, “but we will have to wait and see.”