BPCE SFH launched its third euro benchmark of the year today (Wednesday), a seven year covered bond that met with modest demand, although bankers suggested there was little to fault despite the deal coming soon after the sovereign was cut to Aa1 on Monday.

Leads BayernLB, ING, Natixis, NordLB and Société Générale went out with indications of interest of the high 40s over mid-swaps this morning before setting guidance at the 48bp over area. They will price the deal at 48bp over on the back of around Eu1.3bn of orders.

One syndicate official away from the deal interpreted the result negatively, seeing the investor response as somewhat disappointing for a high quality issuer and indicative of poor timing, coming after France was downgraded by Moody’s on Monday.

Another said the response to the deal looked lacklustre, but that there was little he could point to as a clear reason for this.

“It didn’t seem like there’s anything wrong with it,” he said. “I’m scratching my head a bit.”

They suggested the deal should have benefitted from the downgrade of France rather than being harmed by it, given that the offering was a triple-A rated covered bond with a good premium over French government bonds that are now rated double-A by two rating agencies.

He said that the underwhelming response to BPCE’s new issue could perhaps be due to the issuer already having sold a long five year in September, and the investor base perhaps not being that established in the five to seven year maturity range for the issuer.

Others suggested the deal was solid, and played down the impact of the rating action on the sovereign.

“The downgrade of France has been expected since a year ago, so nothing really surprising for the investors,” he said. “The deal is not a blow-out or something like that, but it’s OK.”

Another echoed this sentiment.

“It’s a tight deal that got the volume done,” he said. “It looks like there’s demand but not enough to drive the pricing tighter.

“The France downgrade was not really a big event. Govvies widened a bit but then recovered and there were buyers stepping in to covered bonds.”

Analysts at RBS said that traders at the bank have seen more two-way flows in French covered bonds after the downgrade of the sovereign and that the market feels a bit softer. “Bonds were quoted a couple of basis points wider – at most,” they added.

There were no quibbles over the spread on BPCE’s new issue, which syndicate bankers said looked fair based on outstandings, with the new issue premium seen at between 3bp-6bp.

BPCE September 2021s were around 59bp over asset swaps bid before the new issue was announced, and February 2017s at around 30bp over, according to one.

“The high 40s was definitely the right spot and a good starting point,” he said.

The deal offered a decent pick-up of around 30bp over French government bonds, according to syndicate bankers, with one putting October 2019 OATs at a yield of 1.443% mid. That compared well with the 10 year maturity bracket, where some French covered bonds were trading flat to government bonds, he said.

At 48bp over mid-swaps BPCE’s new issue will yield around 1.75%, said syndicate bankers, enough for a 1.75% coupon but arguably not enough for some accounts.