Crédit Agricole placed a Eu1.25bn seven year issue yesterday (Thursday) that was executed with a “cautious approach” given unsupportive market conditions, particularly compared with a similar Société Générale deal last week, according to an official at the French bank.

The deal was the first benchmark covered bond after the announcement of  Italian election results, which had led to market volatility. Vincent Hoarau, head of FIs, covered bond and ABS syndicate at Crédit Agricole, said that yesterday morning there was “no hard evidence” that there was enough interest for a seven year jumbo covered bond, particularly because outright yields had fallen since the previous week.

“Even if investors were getting very prudent and selective in a much weaker market, there was clearly a flight to quality,” he said. “Although the market environment had completely changed, we felt that a core covered bond deal would work for Crédit Agricole.”

Leads Crédit Agricole, Commerzbank, ING, Santander, Société Générale and UniCredit priced the deal at 35bp, after having gone out with initial price thoughts in the 40bp over mid-swaps area and guidance of 35bp to 40bp over.

Hoarau said that pricing references included the interpolated seven year point on Crédit Agricole’s curve, which was seen in the low to mid-30s, and a Société Générale seven year issue that was priced at 33bp over mid-swaps on Wednesday of last week, before the Italian elections.

“Our French peer printed only Eu1bn and the bonds did not perform on the break,” said Hoarau. “In a market where investors were much more demanding and volatility returned in force, a cautious approach was therefore a prerequisite for Crédit Agricole to get somewhere, and the IPT level took into account the global circumstances.

“We started in the 40bp over mid-swaps area to ensure the right traction from the outset, with the clear intention to guide everyone tighter during the bookbuilding process,” he added.

Some syndicate bankers away from the leads had questioned the 40bp starting point, as they saw it as wide in comparison to the 33bp achieved by SG.

Hoarau noted that outright yields in seven years had dropped some 15bp from when SG’s deal was launched, and that April 2020 OATs had also widened some 6bp since last week.

“The market has completely changed and is far from being stable,” he said. “Pricing only 2bp back of Société Générale with a larger deal was a great outcome for the issuer.”

The new Crédit Agricole deal was priced 13bp over OATs, he added.

The order book reached Eu1.7bn, and more than 100 accounts participated in the transaction, with French and German asset manager and bank treasuries taking the largest shares, according to Hoarau.

Asset managers were allocated 46%, banks and private banks 41%, central banks and other official institutions 10%, and insurance companies 3%. Germany and Austria took 34%, France 32%, the Nordics 11%, the Benelux 7%, Asia 6%, the UK/Ireland 4%, Italy 3%, Switzerland 1%, and others 2%.

According to Hoarau the deal was trading at 32bp over mid-swaps this (Friday) morning.