Société Générale SFH priced the tightest French 10 year benchmark covered bond since February 2008 yesterday (Tuesday), a Eu750m no-grow issue, and a banker on the deal said the capped size allowed the leads to be more targeted in their choice of IPTs to avoid “grinding in” the spread.

The lead syndicate official said that the issuer decided to take advantage of what he described as the last window for covered bond issuance before the Easter break, and that the deal had not been planned for a long time.

“There has been quite a lot of volatility around, and while yesterday did not present the perfect market it did present the right opportunity given the goals that the issuer had in mind,” he said.

Leads Crédit Agricole, Erste, ING, Société Générale and UniCredit went out with initial price thoughts (IPTs) of the high 20s over mid-swaps for the obligations de financement de l’habitat issue, before tightening the spread to set guidance at the 27bp over area (plus/minus 1bp) with indications of interest at Eu1bn and the order book “building steadily”, according to the lead syndicate official. With around Eu1.2bn of orders collected from around 70 accounts, the spread was then fixed at 26bp over.

The syndicate official said that this makes SG’s benchmark the tightest French 10 year deal since February 2008, and noted that it provided just 1bp of pick-up over OATs, with a May 2024 French government bond yesterday trading at 25bp over.

“The key determinant was always the OATs,” he said. “We wanted to make sure we had some pick-up over OATs, but we wanted to reduce this to the lowest extent possible.”

Noting that the deal was only going to yield around 2%, he said that the intention had never been to generate a huge order book and that the leads were very targeted in their approach to pricing.

“We were not looking to go out with IPTs that would require us to hugely grind in the price, rather we wanted to start at a level close to where we intended to finish,” he said. “A key determinant was that the size was always going to be limited from the outset, which meant that we could start a little tighter than we would have done if we were looking at Eu1bn-plus deal.”

At 26bp over and with a coupon of 2%, the deal was priced to yield 2.001%.

The longest dated SG SFH comparable the leads could refer to was a January 2022 issue that was yesterday trading at 16bp over, according to the syndicate banker, with the leads also taking into account outstandings such as SG February 2023 obligations foncières trading at 22bp over, Crédit Agricole January 2022s at 20bp over, and a Caffil January 2024 at 27bp over.

“So from the very start it appeared there would be a very limited premium, and the goals we set out to achieve were achieved if not exceeded,” he said.

Germany and Austria took 38%, France 19%, the UK and Ireland 14%, Asia 12%, the Benelux 10%, southern Europe 4%, Switzerland 2%, and others 1%.

Banks were allocated 41%, insurance companies and pension funds 26%, asset managers 17%, private banks 9%, SSAs 6%, and others 1%.