Eurosystem participation did not play a decisive role in a Eu1bn Crédit Mutuel Arkéa dual tranche tap yesterday (Wednesday), an official at the issuer told The Covered Bond Report, with the transaction already well supported by demand outside the ECB’s covered bond purchase programme.

The increases provided the Eurosystem with its first opportunity to make covered bond purchases on the primary market under CBPP2, with some modest secondary market buying understood to have already taken place.

Crédit Mutuel Arkéa, Brest

Leads Crédit Agricole, Crédit Mutuel Arkéa, DZ Bank, and LBBW priced a Eu250m increase of a Eu1.25bn June 2015 obligations à l’habitat issue for Crédit Mutuel Arkéa Home Loans SFH and added Eu750m to a Eu1bn April 2021 issue. The short dated tap was priced at 100bp over mid-swaps, following guidance of the low 100s, while the short 10 year increase was re-offered at 125bp over, the tight end of guidance of 125bp-130bp over.

A syndicate official at one of the leads said that the re-offer spreads incorporated new issue premiums in line with concessions usually seen in new issues, and that this was unusual for a reopening.

Syndicate bankers away from the leads were complimentary of the transaction, with one noting that the taps had attracted Eu750m of demand before the Eurosystem stepped in. Another said he was surprised that take-up of the longer dated increase was larger than for the April 2015 tap given “what the Bund was doing yesterday”, and that this was positive.

They played down the chances of further supply hitting the market this week, despite market conditions improving during the course of this (Thursday) morning as an auction of Italian government bonds met with good demand and aggressive purchases of BTPs in the open market by the ECB. The Bund future opened at a new high of 139.5, breaching a record of 139.32 set yesterday, but is down since.

But with CBPP2 having started and potential resolution over the weekend of who will replace Italian prime minister Berlusconi, next week could provide opportunities for covered bond issuance, said the syndicate officials.

“If the markets are halfway stable we should see some covered bonds next week,” said one.

Münchener Hypothekenbank and HSBC France were mentioned as being rumoured for possible issuance.

Thomas Guyot, financial markets, managing director at Crédit Mutuel Arkéa, told The Covered Bond Report that the purchase programme did not have a strong impact on its deal, which had already attracted good demand before the Eurosystem order was placed.

“The purchase programme is supportive of the market and demand for covered bonds in general,” he said, “but the specific Eurosystem participation was not decisive for our transaction.”

The Covered Bond Report understands that the central bank in the home jurisdiction of any new issue co-ordinates and collects orders from all Eurosystem central banks to then place a consolidated order with the leads for any bonds the Eurosystem wishes to purchase.

However, a syndicate official said that co-ordination of buying under CBPP2 has not yet been finalised.

Orders exceeding Eu1bn in aggregate were placed for the taps.

“It was our understanding from the beginning,” said Guyot, “that the Eurosystem wants to be involved in a real transaction, in the sense that they want to support transactions that are already able to attract investors.

“That was the case in our deal, which was already a success when a purchase programme order was placed, although of course the programme made it possible to do a larger deal.”

He said that CBPP2 may have had more of a bearing, for example on the choice of maturity, if the issuer had been considering a new benchmark, but that Crédit Mutuel Arkéa had had taps in mind for some time and had been monitoring the market for an opportunity.

“We felt there was some interest in these two bonds, especially in France for the 2021 issue,” he said, “but we were not sure what the level of foreign investors’ interest would be.”

This turned out to be a positive surprise, according to Guyot, as foreign demand was higher than for an obligations foncières benchmark the issuer sold in September.

He said the transaction was a good sign for the market and the issuer, in particular given that it was executed amid continuously deteriorating market conditions on the day after what initially appeared to be a stabilising situation following what was first considered to be good news emerging from Italy.

“Most of the demand was on the 10 year, which was our preference, too,” he said, “and it shows that despite these volatile market conditions investors still have cash to invest and have confidence in a retail focussed bank like Arkéa.

“It was very positive for our bank to show we have access to the market even in quite difficult conditions and the amount we were able to issue was very positive for us.”

Of the 2021 tranche insurance companies bought 35%, banks 28%, central banks 20%, asset managers 13%, official institutions 3%, and others 1%. France was allocated 68%,  Germany 20%, the UK 11%, and others 1%.

Of the 2015 tranche central banks bought 38%, banks 37%, asset managers 14%, official institutions 10%, and insurance companies 1%. France bought 46%, Germany 29%, the Nordics 4%, the UK 4%, and others 17%.