BPCE kept a lid on the new issue premium for a EUR1bn eight year covered bond today (Monday), with bankers citing the absolute level to which spreads have widened as helping attract demand, while an SG investor survey found half of respondents plan to lift holdings of the asset class in 2019.

The French issuer entered the market at around 9.30 CET via leads Citi, Commerzbank, ING, LBBW, Natixis and Nordea, with guidance of the mid-swaps plus 11bp area for the eight year obligations de financement de l’habitat. The leads said this equated to a starting new issue premium of around 6bp, based on fair value of 5bp over, citing BPCE September 2025s at 4bp over, mid and BPCE April 2028s at 5bp over.

“6bp is not too generous compared to recent trades,” said a syndicate banker at one of the leads, “but our reasoning was that it must look interesting because it is being offered at such a high absolute spread.”

Bankers away from the leads agreed that the optics were attractive, with one noting that La Banque Postale at the end of January sold a EUR750m 10 year benchmark at 8bp through mid-swaps.

Orders surpassed EUR750m, excluding joint lead manager orders, in around an hour and a half, and after just under three hours the book stood at more than EUR1.15bn. The spread was at that point set at 9bp over, and books were closed after three and a half hours at EUR1.2bn, and the size set at EUR1bn.

The lead syndicate banker said this meant the issuer did not have to choose between size and price, but could achieve a EUR1bn deal with a new issue premium of 4bp. Some bankers away from the leads put the premium at 5bp, seeing the BPCE outstandings 1bp tighter, but did not dispute the deal’s success. One noted that the deal was further helped by paying more than 30bp over OATs.

The lead syndicate banker said that the eight year maturity fitted into BPCE’s curve and also where demand is most evident, in the five to eight year part of the curve.

The deal emerged at short notice, and bankers noted that the market had opened stable to a touch tighter this morning, after weak days at the end of last week. The lead banker said the deal represented pre-funding for BPCE, and as such it was under no pressure to tap the market.

“The market looked pretty good and we decided to use this good market environment, with European markets constructive even if there were some trade war noises over the weekend,” he said. “All in all it was a successful outcome for BPCE.”

An survey of some 40 covered bond investors released by Société Générale analysts today suggested the demand encountered by BPCE at wider spread levels may be a factor in new issuance in the coming year.

Some 49% of investors surveyed plan to increase their allocations to covered bonds, compared with just 18% last year and fewer in the previous two years.

“Our results indicate that although the ECB has crowded out real money investors over the past three years, wider covered bond spreads should prompt investors to return to the market,” said SG’s analysts.

They noted that while most respondents think spread widening will continue, it will be limited to a maximum of 10bp for core Eurozone, EEA, and non-Eurozone credits.