France’s BPCE built what looks like the largest order book so far for a core covered bond this year, containing around Eu2.5bn of demand, with syndicate officials away from the deal citing attractive pricing and a lead banker putting the final new issue premium at 5bp.

The deal is only the second benchmark covered bond this week as FIG primary market activity in general has calmed down compared with the first two weeks of the new year – a Eu500m no-grow five year trade at 13bp over mid-swaps for Belgium’s Belfius Bank was the first new issue of the week. (See separate article.)

BPCE SFH’s deal is the third French covered bond this year, after 10 year issues for Caisse Française Financement Local (Caffil) and La Banque Postale SFH on 7 and 8 January, respectively.

BPCE leads ABN Amro, BNP Paribas, Commerzbank, Danske, LBBW and Natixis will price a Eu1.5bn six year obligations de financement de l’habitat (OH) issue at 24bp over mid-swaps. Some 113 accounts placed around Eu2.5bn of orders, according to one of the leads, which means that BPCE looks to have built the biggest order book for a euro issue so far this year. A Eu1.5bn five year for Nordea Bank Finland met with the next strongest level of demand, with orders of around Eu2.25bn, while ABN Amro Bank on Thursday met with Eu2bn of interest for a Eu1.5bn 10 year.

“The order book is pretty sizeable in the context of recent deals so it won’t have been viewed as expensive,” said a syndicate official away from the leads, putting the new issue premium (NIP) incorporated in the initial price thoughts (IPT) for BPCE’s deal at 10bp.

The BPCE leads initially marketed the transaction at the mid to high 20s over, which generated more than Eu1bn of indications of interest, according to a banker on the deal, and at this stage the guidance was revised to 25bp-27bp over. It was then revised to the 25bp over area (plus/minus 1bp), with orders exceeding Eu1.6bn.

At 24bp over, where the spread was fixed, the six year issue is offering a new issue concession of 5bp based on BPCE’s interpolated secondary market curve, said a lead syndicate banker.

This chimes with assessments from syndicate bankers away from the deal, who said that the pricing is attractive. One put fair value at 20bp over, and inside that if the steeper part of BPCE’s curve is interpolated, from the issuer’s November 2019s at 14bp over to its September 2020s at 23bp/20bp over.

Another syndicate official away from the leads put fair value at around 16bp over.

However, they suggested the larger new issue premium was defensible given the credit and a general need for concessions to be higher than they have been so far this year.

“We’ve been spoilt with tight new issue premiums recently,” said one. “In covered bonds some of the recent deals haven’t performed that well and the market is a touch softer in secondary, the French especially but core overall.”

Today’s deal comes after BPCE priced a Eu500m no-grow 10 year OH in late November that was seen as having been marketed with unnecessarily wide initial price thoughts, and a syndicate official away from today’s deal suggested it was an improvement on that transaction.

“It’s not anywhere near as generous as their last one,” he said.

BPCE’s deal is also seen as attractive compared with sovereign alternatives, offering a 20bp-25bp pick-up to OATs, more than what would be available in the 10 year part of the curve, according to bankers.

ING Bank strategists noted that from an issuer ratings perspective BPCE SFH trades at a pick-up versus some of its French peers, with six year interpolated curves for Société Générale SFH and Crédit Agricole SFH worth 9bp and 11bp on the bid, respectively.