Crédit Agricole Public Sector SCF attracted a peak €2bn-plus of orders to its first euro benchmark in over two years yesterday (Thursday), enabling pricing roughly flat to fair value, before fears over a new Covid-19 variant hit markets today, clouding the outlook for the year-end run-in.

Following a mandate announcement on Wednesday, leads Commerzbank, Crédit Agricole, Helaba, IMI Intesa Sanpaolo, LBBW and Natixis yesterday morning opened books with initial price thoughts of the mid-swaps plus 7bp area for the €500m no-grow December 2021 obligations foncières, expected ratings triple-A. After just under an hour, the leads reported books above €1.25bn, excluding joint lead manager interest, and after around two hours and 10 minutes, guidance was revised to 3bp+/-1bp, will price in range, on the back of books above €2bn, excluding JLM interest. The new issue was ultimately priced at 2bp on the back of more than €1.65bn of orders good at the tight end of guidance, pre-reconciliation and including €125m of JLM interest.

The deal is the first for the public sector covered bond issuer of Crédit Agricole since September 2019 and a syndicate banker at one of the leads said the level of demand and pricing represented a strong outcome for the issuer, which was keen to put in a return appearance and refresh and extend its curve.

“For the SCF, we don’t tend to get the same level of order book as we do for Crédit Agricole Home Loan SFH, as not necessarily all investors have lines for it and we are talking to a smaller group of investors,” he said. “So we were extremely happy yesterday to be above €2bn without any JLM interest at peak – clearly there was very strong interest in something that offered a tiny bit more spread versus other pure core names.

“And the beauty of yesterday’s trade is that we were able to tighten to 2bp, which is just 1bp back of Rabobank. Obviously, this was a smaller size and a Rabobank €500m no-grow would probably have been tighter than plus 1bp, but at the end of the day, comparison-wise it looked very good.”

The French deal came two days after the Dutch issuer on Tuesday priced a €1.5bn 10 year at 1bp over mid-swaps on the back of some €2.5bn of interest, with the first deal of 10 years or longer in just over a month. On the same day, Societe Generale SFH had attracted €4.2bn of demand to a €1.5bn five year.

“We’ve been looking at the five year part of the curve, saying, oh, this is the sweet spot,” said the lead banker, “but I think we lost sight of the fact the whole curve works, and Rabobank and Crédit Agricole have proven that. It’s true that we had some investors telling us that they would have preferred something shorter, but that was the same guys who said that three months ago.”

According to pre-announcement comparables circulated by the leads, Crédit Agricole’s October 2026 obligations foncières were trading at mid-swaps flat, its August 2027s and September 2028s at plus 0.5bp, and its March 2029s at plus 1bp, and bankers at and away from the leads saw the 2bp re-offer spread of the new issue at roughly flat to fair value.

At the start of the week, syndicate bankers had been uncertain about the extent of further supply this year, but the three deals totalling €3.5bn have taken year-to-date euro benchmark volumes, some €91.9bn, to within touching distance of 2020’s €92.2bn, noted LBBW analysts today, following the heavier than expected post-summer issuance.

“The issue pipeline was empty again this week,” they added. “However, given the continued high investor demand, it should still be attractive for issuers to raise funds in the primary market this year.”

Fears over the emergence of a new Covid-19 variant hit markets today, with several European stock indices falling 3%-4% and Bunds rallying sharply, but syndicate bankers said the change in tone will not necessarily change already-modest supply expectations in covered bonds.

“Obviously today’s very red,” said one, “but, frankly, I would expect covered bonds to be kind of immune and I think the market is open for issuance next week – in a market meltdown, it’s actually where investors want to be buying.

“But I don’t expect to see a lot – if anyone was thinking of doing a trade before year-end, they should have come by now rather than waiting for end-November/beginning of December. And the variant news is just another excuse for investors to call it a year.”