The European Central Bank is understood to have cut the standard CBPP3 order from 40% of new euro benchmarks to 30%, as encountered by OP Mortgage Bank on a successful €1bn five-and-a-half year green covered bond yesterday (Tuesday), as the central bank’s accelerated tapering begins to bite.

On 10 March, the ECB announced that Asset Purchase Programme (APP) purchases would henceforth be lower than announced in December, amounting to €40bn in April, €30bn in May and €20bn in June, and yesterday’s Finnish deal is the first CBPP3-eligible benchmark to settle under the new schedule (on 5 April).

The ECB has previously cut order the Eurosystem’s standard orders at quarter-ends when reducing targeted monthly APP amounts, with issuers having at times achieved weaker results than anticipated when unexpectedly being the first to face reduced orders, and the potential for such a shift this week was flagged ahead of OP’s deal.

The ECB does not comment on its order sizes and bankers are asked to refrain from doing so, but The CBR understands the CBPP3 order for OP was indeed 30%, rather than the previously typical 40%.

The Finnish issuer nevertheless achieved an order book of some €2bn at re-offer and achieved pricing of 2bp over mid-swaps, following initial guidance of the 6bp area.

A lead banker put the new issue premium at 3bp-4bp. He noted that OP’s curve implied fair value of around minus 2bp, and said that while the pricing of a €1.5bn seven year for compatriot Nordea Mortgage Bank on Thursday at 4bp suggested fair value was slightly wider, Nordea’s deal also factored in some new issue premium.

“We achieved a very pleasant outcome against this market backdrop where there are still some question marks,” he said. “We have seen brutal moves in rates, and there was also some uncertainty how the ECB would behave given the April settlement, in light of the tapering discussions, even if we were not overly concerned about the feasibility of an OP Mortgage green covered bond in an intermediate tenor.

“But we were a little firmer in making the right recommendation in terms of starting point and how we would address things if the ECB scaled back. And overall, it probably went a little better than anticipated, in a market that is a tad more challenging than when Nordea hit the market almost a week ago.”

A banker away from the leads suggested OP might have achieved a marginally tighter outcome had it not been for the ECB’s move, if only because the leads could have gone out with a slightly lower starting point.

He said he expects the market to quickly come to terms with the ECB’s moves.

“You could argue it is unhelpful, but also that it is very long overdue,” he said. “It will maybe impact different issues in different ways, and maybe spreads over time. If you’re a small, infrequent issuer and you haven’t been doing a lot of IR while times have been easy, then you might want to rethink your strategy a little.

“But it’s certainly a place we’ve realised we are headed so I’m not overly concerned about it – the product didn’t necessarily need the assistance in the first place.”

DZ covered bond analyst Jörg Homey said the cut to the ECB’s order came earlier than he had anticipated, having viewed a May move as more likely.

However, he said that he does not expect the CBPP3 order to be reduced to zero anytime this year, noting that even in 2019 when there were no new net APP purchases, the ECB maintained a 5% order size.

“Given that redemptions in the CBPP3 portfolio are higher – we now have €3.4bn per month compared to €2bn at that time – I would expect a larger order,” said Homey.