Euro supply expectations for the week were low among syndicate bankers this (Monday) morning, with one noting that any deals are likely to come at short notice, as was the case for a CFF transaction on Friday, and Belfius Bank said to be more likely to debut next week rather than this.

Based on the morning’s session the market backdrop is not ideal for new issuance, said syndicate bankers, also putting paid to any notions of a resumption of tier two peripheral supply, as triggered by a recent senior unsecured deal from Portugal’s Banco Espirito Santo, for example.

“Today opened with the same tone as at the end of last week, meaning risk-off,” said one. “And with the uncertainty ahead of the EU meeting this isn’t the sort of backdrop that makes an increase in supply likely.”

Another said that the outlook was for “extremely limited” supply, but said that deals will come quickly and at short notice if at all, as was the case for a Eu1bn 10 year deal for France’s Compagnie de Financement Foncier on Friday.

Market participants may have to wait a little bit longer for Belgium’s first covered bond. Belfius Bank announced a mandate on Friday, and a syndicate banker at one of the leads — Deutsche Bank, HSBC, Natixis, Nomura, Rabobank and Belfius — said that an investor conference call would take place tomorrow (Tuesday) or Wednesday, and that a deal probably will not be launched this week, with early next week a more likely timeframe.

Fitch and Standard & Poor’s have assigned preliminary triple-A ratings to Belfius’s initial pandbrieven issue; S&P’s rating is on negative outlook and Fitch’s on stable.

Meanwhile, investor demand for long dated covered bond supply and stable market conditions after a European Central Bank meeting on Thursday prompted France’s CFF to launch its third benchmark of the year on Friday, a Eu1bn maximum 10 year deal that an official at the issuer said was “a great success”.

The transaction was the first 10 year euro benchmark since the beginning of September, and a syndicate banker away from the deal said that other issuers will take note of it, especially because it appeared to come inside secondary market levels, although he was not surprised by the outcome.

“People will find it interesting,” he said, “but it’s not a great surprise that it went well given the lack of supply, even for issuers like CFF that have line issues.”

Leads Barclays, BNP Paribas, Deutsche Bank, DZ Bank and Natixis built an order book of around Eu2.2bn, with some 130 accounts, and priced the deal at 74bp over mid-swaps. This followed guidance of the 77bp over area, which was revised to 74bp-76bp over, after initial price thoughts of the high 70s.

Christoph Alenfeld, syndicate official at DZ Bank, said that the deal was trading at around 72bp over bid today.

“The tight pricing is quite remarkable,” he said. “One of the most interesting lessons to learn from the transaction is the extent to which the lack of supply dominates investor behaviour.”

CFF’s secondary market curve, and an outstanding January 2022 obligations foncières issue in particular, was the main pricing input, said Alenfeld, with attractive pricing compared with some of the issuer’s national peers helping to motivate demand.

“It really was a pleasure to work on this deal,” he said.

Paul Dudouit, head of medium and long term funding at CFF, said that the issuer had for several days been getting feedback about long end demand, and that it decided to forge ahead with a deal after the ECB left interest rates unchanged on Thursday, with markets relatively stable on Friday.

“We took advantage of the window,” he said, “and given that there hadn’t been any long dated issuance in two months there was strong demand for our deal.

“Two hours after we opened the order books we had Eu2bn of orders and were able to tighten the spread, and, most importantly, to come inside our secondary market curve.”

The spread over OATs is in line with the premium over government bonds CFF has historically paid, added Dudouit.

“It has ranged between 28bp over and 35bp over,” he said, “and this time the spread was 30bp,” he said. “The deal was a great success and reopened the long end covered bond market.”

CFF plans to raise Eu8bn-Eu10bn of funding via covered bonds in 2013 and the coming years, according to Dudouit.

“That will be subject to market conditions, but we expect to be in that range for the next few years,” he said.

CFF’s parent, Crédit Foncier de France, is seeking to reduce the size of its balance sheet to less than Eu120bn by 2016 versus Eu166.5bn at the end of June, according to Moody’s. The specialist real estate lender on 29 October announced that it had sold just over Eu1bn of government subsidised residential mortgages (Prêts à Taux Zéro) to La Banque Postale.

Germany and Austria took 51%, France 18%, the UK and Ireland 11%, Nordics 4%, Switzerland 7%, Asia 3%, southern Europe 3%, the Benelux 1%, and others 2%. Asset managers and insurance companies were allocated 61%, banks 30%, and central banks and supranationals 9%.