Wednesday, 26 September 2018

FIG: Caffil tests 10-year, gets over the line

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Caisse Francaise de Financement Local brought the first acid test at the long end of the covered bond market since BNP Paribas priced a €750m 10-year trade in April but met with a muted response.

Caffil priced the €1bn 10-year issue at 3bp over mid-swaps via BNP Paribas (B&D), Commerzbank, ING, Natixis and SG, the tight end of the 5bp area IPTs. Books were around €1bn at the last update.

It comes two days after Commerzbank bagged its own successful trade in the tenor, a €500m (no grow) deal at 13bp through swaps but that could rely on a strong domestic bid.

Updates on Caffil were slow to emerge and the move in spread was less than for the mid tenors, where most deals’ levels have tightened by around 4bp.

“It was not the deal of the year, but I would blame the wave of supply. It looked cheap versus the curve, which is no surprise as you’ve had eight deals in two days,” said one banker away from the trade.

“But given their long dated assets, a 10-year makes sense and I’m happy it isn’t a seven-year as I think we’re loading too much in there.”

Caffil has already issued eight- and 20-year bonds this year. Those were bid on Wednesday around swaps minus 8.4bp and plus 15bp, according to Tradeweb prices.

Bankers had warned it could be hard sell since IPTs came just inside the French government curve.

Demand was far from overwhelming but it was enough to get a deal done - and BayernLB has already announced its own 10-year mandate via ABN AMRO, BayernLB, Credit Agricole CIB, DZ BANK and ING.

“10-years were shunned for a while before the summer. But now, investors are very cash rich and if relative value is right, anything between five- and 10-years should work,” said another banker. “There isn’t a particular sweet spot at the moment.”

High turnover

Royal Bank of Canada and Erste Group went shorter and both offered five-year covered bonds.

One banker thought RBC left nothing to chance with its starting level of swaps plus 12bp area, having faced an uphill struggle to price a €500m seven-year in June. That bond is now bid at plus 9bp, after pricing in line with IPTs at plus 2bp.

A lead saw fair value around 3bp over swaps, implying a new issue premium of around 9bp at the IPT level, in line with the NIPs offered by other issuers. The spread later fixed at plus 9bp on books of €1.6bn, following guidance of plus 10bp area.

Deutsche Bank, ING, Natixis, RBC and UBS are managing the trade.

Erste Bank began marketing its five-year at plus 7bp area via Barclays, CaixaBank, Commerzbank, Credit Agricole and Erste Group.

Guidance followed at plus 5bp area (+/-2bp), ahead of a final plus 3bp.

DG Hyp offered some action at the short end pricing a €500m no-grow three-year via Commerzbank, DZ, LBBW, Natixis and WGZ.

Books opened at mid-swaps minus 12bp area with IoIs at €800m, and pricing was later fixed at minus 13bp.

No let up in Canadian issuance

The Canadian assault on the euro market continued on Wednesday with two new senior trades, bringing the week’s total to five across the senior and covered markets.

“The dollar market is very choppy at the moment and it’s just not that attractive. The pricing stacks up, they can get decent size and there’s more execution certainty, so a (euro) trade makes a lot of sense,” said one banker.

National Bank of Canada’s two-year floater is its first euro senior benchmark since a €500m five-year FRN in 2003.

IPTs came at three-month Euribor plus low 30s via leads BNP Paribas, Commerzbank, Lloyds and NBC, which later revised guidance to plus 28/30bp (WPIR) on books above €1.6bn.

A lead saw fair value in the high 20s.

Bank of Nova Scotia, rated Aa2/A+/AA-, swiftly turned around a new three-year FRN via sole bookrunner Goldman Sachs and Scotiabank.

IPTs came at three month Euribor plus 38-40bp, later pricing at plus 38bp for a €1bn deal. The final book size was not released.

Three-year FRNs from stronger Canadian names trade around 30/32bp over the benchmark, implying a concession of around 6 to 7bp.

Both transactions follow in the wake of CIBC, which printed a bumper €1.75bn two-year FRN on Tuesday on books over €3bn with strong support from money-market accounts.



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