Compagnie de Financement Foncier (CFF) issued the biggest euro benchmark since January today (Tuesday), a €1.5bn eight year that attracted some €2.3bn of orders at a minimal pick-up to fair value, in a post-Easter confirmation of the resilience of the covered bond market.

The French issuer approached the market at short notice, this morning announcing the mandate for a euro benchmark-sized eight year and entering the market with initial guidance of the mid-swaps plus 4bp area via leads BBVA, Credit Suisse, HSBC, LBBW, Natixis, NatWest, Rabobank and UniCredit. After close to two-and-a-half hours, they reported books above €2.2bn and revised guidance to plus 1bp+/-1bp, WPIR, for an expected size of €1.25bn. The size was then set at €1.5bn and the spread at mid-swaps flat on the back of books above €2.3bn, pre-reconciliation, and around €2bn of demand was good at re-offer.

The euro benchmark is the first of the second quarter, and only the second in the past two-and-a-half weeks, after a €500m five year for Fédération des caisses Desjardins du Québec on Tuesday of last week (30 March). The last previous supply was on 18 March, when National Bank of Canada and OP Mortgage Bank (with a green debut) hit the market.

“The last couple of deals have been rarer names or ones that pay up,” said a syndicate banker away from CFF’s leads. “It’s good to see confirmation that run of the mill core European stuff still works.

“When did we last see such a large deal? It bodes really well for the market.”

Today’s new issue is the largest single tranche benchmark covered bond since DNB Boligkreditt sold a €1.5bn 10 year on 14 January, while the size has only been surpassed this year by a €2bn dual tranche issue for CFF’s fellow BPCE group member, BPCE SFH, on 18 January.

According to a lead syndicate banker, the order book is the fourth largest for a euro benchmark this year, and he said the volume and quality of demand gave the leads the confidence to tighten pricing to the 1bp guidance and ultimate mid-swaps flat re-offer spread. He put fair value at 0.5bp through mid-swaps, saying the issuer was able to achieve both its size and price targets.

“If anything, they exceeded the size target,” he added, “and I don’t think they were trying to squeeze any further and go with a negative spread.”

CFF has outstanding September 2028 and September 2030 covered bonds, and the lead banker said the April 2029 maturity fitted well between those.

“We have seen good appetite for that kind of maturity,” he added, “and there are tight spreads to be achieved.”

The euro benchmark is CFF’s first since a €500m 15 year in October 2020, while the most recent issuance from the BPCE group was a €1.25bn dual tranche, 10 and 20 year transaction on 8 March.

Although syndicate bankers spoken to by The CBR did not anticipate a sharp pick-up in supply, one suggested further issuance could be forthcoming soon.

“The momentum in the covered bond market remains very strong,” he said. “Every deal this year is trading inside re-offer, and the supply demand technical support persists.

“I wouldn’t be surprised to see other issuers follow suit.”

LBBW analyst Karsten Rühlmann noted on Thursday that regular issuers who had yet to make a showing in the primary market are likely to approach the market once or twice this year, but was still downbeat on supply prospects.

“Between ample liquidity from central bank funding and ongoing uncertainty from the coronavirus pandemic, few factors currently favour a significant pick-up in primary market activity,” he said. “In this environment, we believe it will be challenging to just equal last year’s already-weak level.”

According to Rühlmann, first quarter euro benchmark supply of €21.75bn is the lowest since 2009, when just €9.25bn emerged in the wake of the financial crisis, and less than half the €46bn of the first quarter of 2020.