CFF drew a peak €1.3bn-plus of orders to a €500m no-grow 15 year covered bond today (Monday), but a €1.1bn-plus final book and pricing in the middle of revised guidance highlighted some price sensitivity among investors that was attributed to a negative yield and imminent EU SURE issuance.

Compagnie de Financement Foncier (CFF) leads BBVA, Helaba, Natixis, TD and UBS opened books this morning for a €500m no-grow 15 year transaction with guidance of the mid-swaps plus 12bp area. After an initial update reported books over €750m, excluding joint lead manager interest, the guidance was revised to 8bp+/-1bp, on the back of over €1.3bn demand, excluding JLM interest. It was ultimately priced at 8bp, on the back of over €1.1bn of demand, excluding JLM interest.

A syndicate banker away from the leads highlighted the degree of price sensitivity shown by investors after the guidance was revised.

“It’s a little bit of a reminder that not everybody is chasing every bond at any price,” he said. “Perhaps we were getting a little ahead of ourselves after last week when we saw these two German building societies smash their way into the market.”

Last week, Wüstenrot Bausparkasse and Bausparkasse Schwäbisch Hall both launched inaugural euro benchmark, €500m covered bonds on the back of books that were around three and four times subscribed on Tuesday and Thursday, respectively.

Caffil also last Monday (12 October) launched a €750m 15 year that attracted over €1.6bn of demand and was priced at 7bp, and the syndicate banker said that relative to this, the result achieved by compatriot CFF today is not entirely unexpected.

“CFF is an established issuer with its own curve,” he added, “but I do think there are people who are not necessarily keen on buying CFF but would buy a Caffil.”

Another banker away from the leads said a level of 7bp for CFF – which he took to be the target given the revised guidance of 8bp+/-1bp – was overly ambitious.

“At some stage, even in this market, people are no longer willing to accept everything that comes along,” he said.

While most investors have “fatalistically” accepted that in shorter maturities they are forced to buy negative yielding paper, some may have struggled to come to grips with the fact that today’s new 15 year issue carries a negative yield, he added.

“To date, this part of the curve has always been positive yielding,” he said, “so this is likely not facilitating matters, and it’s what probably makes this trade a little particular – I wouldn’t call this a turning point for the market.”

Syndicate bankers at and away from the leads saw fair value at around 7bp-7.5bp based on CFF’s curve, implying 0.5bp-1bp of new issue premium.

Another banker away from the leads said today was not the day for CFF to price its transaction flat to fair value given the announcement later in the morning of upcoming EU 10 and 20 year tranches under its SURE funding programme.

“They printed half a day before the announcement,” he said, “so it looks like they were trying to get ahead of that. Given where people think the EU is going to come, this didn’t make the RV particularly attractive for CFF.”

Just 1bp of new issue premium a day prior to the EU issuance is nevertheless a strong outcome, he added, noting that, as a €500m no-grow, the Eurosystem order for CFF’s deal was likely smaller than that put in for Caffil’s €750m issue last week.

“That at the margin means there’s less demand,” he said.

The issuer did well considering volatility in the 15 year swap rate over the past week, according to a lead banker.

“When you’re trying to sell a 15 year product and rates are moving drastically lower it can be difficult,” he said, “so it was a really strong outing for them today.

“It was good to get in that window before the EU hit the screens around lunchtime,” he added, “with a quick, in-and-out trade – books were wrapped up by 10.30 London.”

He said those who chose not to participate did so either because of the negative yield, or the prevailing tight valuations.

“If you think where covereds are trading versus the generic triple-A space, it’s extremely aggressive,” he said.

The issuer hoped to price the transaction at 7bp, he confirmed, but said it ultimately made the right decision to set the spread at 8bp even if a strong trade was available at 7bp.

“In terms of secondary trading and making sure the broader book stayed with you,” he added, “I think it was a really good choice, and the 4bp move is in line with a lot of other recent trades.”

The new issue is CFF’s third euro benchmark of the year, following a €1bn four year deal in April and a €1.25bn 10 year on 17 September.