La Banque Postale achieved a “surprising” outcome today (Monday) by pricing a EUR750m 10 year covered bond with one of the year’s smallest new issue premiums, in spite of heavy supply of French and long-dated paper and some price sensitivity at the final spread revision.

The new issue is the seventh benchmark French covered bond of the year, taking year-to-date supply to EUR6.25bn. The country has been by far the most active covered bond market in 2018 in terms of euro benchmark issuance, having contributed almost twice the volumes of second placed Germany, which has contributed EUR3.15bn.

The EUR750m no-grow obligations de financement de l’habitat issue was launched this morning with guidance of the mid-swaps minus 4bp area. After just under one hour, the leads announced that orders had exceeded EUR1bn, excluding joint lead manager interest.

Guidance was subsequently revised to the minus 7bp area, plus or minus 1bp will price within range, with books at EUR1.3bn, including EUR80m joint lead manager interest. The spread was later fixed at minus 8bp, with the book at EUR1.1bn, pre-reconciliation.

Crédit Agricole, Commerzbank, LBBW, NatWest and SG were the leads.

“It is a fairly surprising outcome, as it has gone even better than expected, in particular terms of the final spread,” said a syndicate banker at one of the leads. “It is fairly flat to the curve, and is one of the first deals of the year to be priced flat to secondaries or with at most a minimal premium.”

Citing La Banque Postale January 2025s at minus 16bp, mid, and June 2027s at minus 9bp, bankers said today’s new issue paid a premium of at most 1bp.

The syndicate banker acknowledged that the leads had encountered some price sensitivity when moving from revised guidance to the final spread, but said the book was nevertheless a good result.

Other syndicate bankers away from the leads said the result was impressive given the volume of supply from France since the turn of the year.

It is also the third French benchmark in the 10 year part of the curve, following a EUR1bn issue for CFF on 3 January and a EUR750m issue for SG on 10 January. The January 2028 deals were priced at minus 7bp and minus 9bp, respectively, and both seen trading at around re-offer or slightly wider on a mid basis today.

The lead syndicate banker said demand was supported by La Banque Postale being one of the less frequent French issuers – adding “they are more like an SG than a Crédit Agricole, in that sense” – and also by a rise in yields that had increased its attractiveness to yield buyers.

Deutsche Hypothekenbank announced this afternoon that it has mandated BayernLB, Commerzbank, Crédit Agricole, DZ and NordLB to lead manage a EUR250m no-grow tap of its EUR500m April 2022 mortgage Pfandbrief.

The original deal was priced in April 2015 at mid-swaps minus 14bp, and seen trading at around minus 18bp-17bp, mid, this afternoon.