Société Générale Home Loan SFH marketed a new five year issue at an aggressive level from the outset yesterday (Thursday) as it wanted to avoid an overly large order book and a big spread move, said a lead banker, and the issuer is thought to have ended up with the tightest French benchmark covered bond since 2010.

Leads BBVA, Danske, DZ, ING, Santander and Société Générale priced the Eu1.5bn obligations de financement de l’habitat issue at 25bp over mid-swaps on the back of an order book just shy of Eu3bn.

The re-offer spread is thought to be the tightest for a French benchmark covered bond, excluding taps, since January 2010, and the tightest for a French issue in a maturity of five years or longer since 2008. It is the first time that a French benchmark has featured a coupon as low as 1%.

The issuer had not been in the market since the beginning of March, when it sold a Eu1.5bn seven year at 107bp over mid-swaps, with the issuer’s absence from the market one of several factors that informed an aggressive pricing approach, according to Rupert Carter, head of covered bond syndicate at SG CIB.

“We knew that a lot of accounts had interest in the programme, and our major goal was to avoid an overly large order book that would leave everyone frustrated,” he said. “The pricing was pretty aggressive from the off, but we didn’t feel we needed a momentum trade and wanted to start closer to the end point.”

In coming to the market at this time the issuer was taking advantage of continued spread tightening and strong demand, added Carter, rather than waiting until January when there is likely to be more supply and possibly less scope for aggressive pricing.

The leads collected around Eu2bn of indications of interest on the basis of initial price thoughts of the mid to high 20s, which Carter said was flat to inside the secondary market curve, and then moved to guidance of 25bp-27bp over before fixing the re-offer spread at 25bp.

“Interpolating the curve before we announced the deal, we felt a theoretical new December 2017 would trade at 28bp over asset swap mid, or 30bp-31bp on the bid side,” he said, “so at the mid to high 20s we started flat to marginally inside the curve.”

SG’s covered bond curves – for its SCF and SFH issuers – as well as outstanding deals for some of its French peers served as the main comparables, according to Carter, with a recent Eu1.25bn five year debut from Belgium’s KBC Bank another, minor, reference.

“We felt it would be overly generous to start flat to where KBC printed,” he said.

KBC’s deal was priced at 30bp over on Monday, and was at around 27bp over before SG’s was announced.

Germany and Austria took 27% of the bonds, France 21%, the Benelux 21%, Nordics 14%, the UK and Ireland 10%, southern Europe 5%, and others 2%. Banks were allocated 52%, asset managers 35%, central banks and SSAs 6%, insurance companies and pension funds 6%, and others 1%.