Crédit Mutuel Home Loan SFH attracted over €2.6bn of demand to a €1.75bn five year covered bond today (Thursday), further indicating that the primary market is increasingly stable and constructive after a similar trade from compatriot Crédit Agricole yesterday.

After announcing the mandate this morning (Thursday), Crédit Mutuel Home Loan SFH leads Commerzbank, JP Morgan, Natixis and UBS went out with guidance of the mid-swaps plus 40bp area for a five year euro benchmark-sized transaction. After reporting books over €1bn, the leads priced the deal at 40bp and sized it at €1.75bn on the back of orders over €2.6bn, with around 90 investors involved.

A syndicate banker away from the leads said that, coming on top of a €2bn December 2024 trade for Crédit Agricole Home Loan SFH yesterday (Wednesday) at the same 40bp spread, the new issue was another positive result for the market, indicating a shift in tone away from coronavirus headlines even if the order book was lower than the €3.7bn achieved by Crédit Mutuel’s compatriot.

“There was a bit of overhang of demand,” she said. “People obviously like the levels, but there were probably some guys who, after buying a big chunk of Crédit Agricole at 40bp, wanted a higher premium as this is the same sort of French risk and a little bit longer.

“But otherwise, people are continuing to print deals: corporates had a great start to the quarter yesterday, we had some financials supply as well, and SSAs have been busy, so the primary market is definitely in good shape. Fingers crossed it lasts.”

Unlike Crédit Agricole, which fixed the spread from the outset at 40bp on its long four year deal, Crédit Mutuel set its guidance at the 40bp area. Another syndicate banker away from the leads said this suggested the issuer had hoped to tighten pricing and that this may have been less well received by investors.

“In the end, they had to price at 40bp,” he said. “But other than that, it was OK – it was only four months longer than the other – so the same price for the same quality, that’s not bad.”

A syndicate banker at one of the leads, however, said the pricing was constructive given Crédit Mutuel did not price wider than Crédit Agricole, noting a series of recent Canadian euro benchmarks that had been priced at progressively wider spreads.

“The key message is, no widening,” he said, “so the market is appearing to stabilise a bit. We could have moved to 39bp or maybe 38bp, but the issuer didn’t want to risk anything in what was a very smooth deal.”

Another lead banker said Crédit Mutuel could have priced a €1.5bn deal at a tighter level, but that it ultimately went for the maximum size, adding that he was particularly pleased with the “fantastic” quality of the order book, as well as the number of accounts that were involved.

“We see a similar attitude towards pricing in the corporate space at the moment,” he said. “But even so, being able to print a slightly longer maturity at the same price is great.

“The book quality is encouraging,” he added. “It’s exactly what the market needs and it’s clear that the LCR portfolios after the quarter-end are engaging at these new levels, and you’re not buying on your own – you have a prominent buyer with you [the Eurosystem], which is what I do believe will support this market from a technical perspective going forward.”

A banker said central bank orders for the latest deals had not increased from 40%, despite speculation among some market participants that Eurosystem bids in the primary market would reach at least 50% under PEPP.

“In my opinion,” he added, “they should keep it as it is, as it would be unfair to deals pre-corona in January and February. If they need more volumes, they can go for the secondary market.”

The lead banker said the deal served as evidence that central bank support was not necessarily needed across all transactions.

“That is much more comforting to me,” he added, “as in the end, what counts is that you have 90 investors in the book that are engaging in good size.”

Another banker away from the leads said more and more “big hitters” are stepping in.

“Until the start of this week, the market was mainly dominated by the bank treasuries and central banks, as you would expect – obviously they don’t have outflows to worry about in the same way as an asset manager does,” he said. “The asset manager community had been a little bit more side-lined, but clearly now is starting to partake again.”

He suggested that prices could also be on the verge of a tightening trend.

“I think that turn is coming,” he said, “it’s just a matter of time. There’s no reason why tomorrow a top tier European bank with an ECB order can’t price a five year deal in the high 30s, given what we’ve seen today.”

The past four CBPP3-eligible benchmarks have all come from French issuers, which one syndicate banker said could indicate the jurisdiction is being more realistic about dislocated pricing levels, as well as reflect the fact that others are entering blackout periods.

“Once we are out of these blackout periods we will see some Nordic countries definitely coming to the market,” he said, “they all have to start eventually, so by around the end of April, others will start popping out.”

Another said the two French euro benchmarks could pave the way for more supply.

“There are probably more issuers now looking who were unsure before,” he said, “but if they’re from France or other parts of Europe, it’s difficult to say.”