France’s BPCE SFH launched its second benchmark covered bond of the year today (Wednesday), a Eu500m no-grow 10 year deal that drew more than Eu2.5bn of demand after being initially marketed at what bankers away from the leads said was too wide a spread.

Leads Barclays, HSBC, Natixis and UniCredit announced the obligation de financement à l’habitat (OH) transaction this morning and gathered more than Eu1.25bn of indications of interest after setting initial price thoughts (IPTs) at the 50bp over mid-swaps area.

They then set official guidance 5bp tighter, at the 45bp over area, before fixing the spread at 43bp over with order books closing in excess of Eu2.5bn pre-reconciliation, according to a syndicate official at one of the leads.

Syndicate officials away from the deal said it was pitched too wide initially, with the spread, after “fairly hefty tightening”, reaching a more appropriate level of 43bp over. One saw this as still offering a new issue premium of 5bp-7bp, although another said it was more limited, worth around 3bp-4bp.

Today’s deal is BPCE’s second new euro benchmark this year, coming after a Eu1bn seven year at 25bp over on 5 September. A syndicate banker away from today’s deal said the September issue was trading around 21bp-22bp over and that a BPCE March 2022  issue was around 25bp over. Fair value for a new BPCE 10 year, assuming a fairly steep curve, would be around the low 30s over, he said, with a new issue premium of some 3bp-5bp taking pricing to the 35bp-38bp over range.

He saw IPTs as offering a new issue premium of up to 20bp, some 10bp too much as a starting point, in particular given that the trade was capped at Eu500m from the outset.

“It was way too cheap,” he said. “It leaves lots of question marks.”

Some syndicate officials away from the leads variously suggested that the need to offer a premium over French government bonds could have played a part, seeing IPTs as having offered 20bp over OATs, as well as the issuer’s credit, and uncertainty about how the 10 year maturity would be received.

One said that a Eu500m no-grow 10 year mortgage Pfandbrief for Commerzbank yesterday (Tuesday) went well, but that there haven’t been that many 10 year transactions this year. The last French 10 year covered bond was a Eu1bn 2.5% issue for CM-CIC Home Loan SFH that came at 36bp over in early September.

Syndicate bankers played down a question about whether a weaker market could explain the pricing approach, saying this was not material and that deals are still getting done, “and done well”.

The leads could not be reached for comment by the time of publication.