A Cariparma OBG debut mandate was the only new issue-related covered bond activity today (Monday), with the primary market quiet after a difficult end to last week, when two senior deals were pulled and an OP benchmark disappointed, with the issuer attributing this to a fall in rates.

Cariparma is a subsidiary of Crédit Agricole and the Italian bank has mandated its parent for a roadshow starting on Wednesday to prepare for a benchmark, inaugural obbligazione bancaria garantite (OBG) issue, subject to market conditions, that could emerge early next week. The issue will be rated A2.

The last Italian benchmark was a Eu1bn long 10 year for UBI Banca priced at 30bp over mid-swaps on 4 November.

Syndicate officials said that a lack of new covered bond issuance today (Monday) was unsurprising given the difficulties faced by issuers last week.

“It makes sense that people are taking a break,” said one.

Another highlighted the weakness of the market by noting that senior issues for ASR and Santander Consumer Finance were pulled on Thursday.

“We know there are some mandates in hand, but it’s still quite challenging and soft in secondary,” he said. “We still need to see all this recent supply digested and to get more traction with real investors – they are either neutral or sellers right now.

“But we are approaching year-end and, after having had a great year, it is understandable if investors don’t want to add more at very tight levels. We are also seeing some selling covered and buying govvies and agencies in anticipation of QE.”

He said that a Eu1bn 10 year OP Mortgage Bank covered bond issued on Friday at 4bp over mid-swaps was bid at 5.5bp today.

The 4bp re-offer level was the middle of initial price thoughts and guidance, and although the IPTs were judged sensible, the end result was considered surprisingly disappointing. Syndicate officials away from the deal also pointed to a last update from the leads that books were approaching Eu1bn as signalling weak demand, even if further interest is understood to have come in after that. Distribution statistics included a 42% figure for allocations both to central banks and official institutions and to the Nordics, with any Eurosystem CBPP3 purchases likely channelled through the Bank of Finland.

When Nordea Bank Finland on 29 October launched the first CBPP3-eligible new issue after the programme began it attracted Eu3.7bn of demand for a Eu1bn 10 year deal and priced it at 1bp over mid-swaps.

Lauri Iloniemi, head of group funding at OP-Pohjola, said that market conditions on Friday had turned out to be less favourable than expected.

“We saw some investors last week on a roadshow and the feedback we got was very assuring,” he said. “But the day did not turn out not to be the best and we did not see as much demand as we had expected.

“There were several factors, but the main one was the fact that the swap rate was under 1%. For many investors it is hard to go below the 1% level.”

He said that when considering the deal on Thursday the 10 year swap rate had been in the 1.045%-1.050% area, but that on Friday it was down to 0.985%.

“It doesn’t seem like a lot, but 6bp-7bp out of 100bp is quite a bit percentage-wise,” said Iloniemi. “With these very low levels that we are talking about, even these basis points become very, very important.”

Iloniemi nevertheless said that there were positives to be taken away from the transaction.

“We managed to price our Eu1bn and get a deal with very high quality investors,” he said. “And we were able to do so at 4bp, which isn’t a bad level at all – our last issue was a five year at plus 5bp.”

That was a Eu1bn issue in early June.

The deal was sized at Eu1bn to maintain OP’s track record of Eu1bn-Eu1.25bn issue sizes, according to Iloniemi.

“I was pretty sure that it was doable,” he added, “and then if you look forward to next week, for example, who knows where the market is then? And it had been considered likely that there would be more supply.”

The new issue was launched to coincide with the maturity of a Eu1.25bn OP covered bond issue on 19 November.

“We were under no pressure to do a deal, but we usually replace our maturing bonds either immediately or shortly after they have matured,” said Iloniemi.

Alongside the 42% distribution to the Nordics and to central bank and official institutions, banks were allocated 26%, asset managers 18%, and pension funds and insurance companies 14%, while Germany and Austria took 41%, Asia 4%, and other Europe 13%.

Barclays, Credit Suisse, Pohjola and RBS were leads.