BPCE SFH will test the long end of the covered bond market with the longest-dated new euro benchmark in 11 weeks tomorrow (Tuesday), a 10 year green covered bond debut. Axa Banque Europe SCF raised €250m in a 2033 tap today, but little further supply is expected in the holiday-shortened week.

This (Monday) morning BPCE SFH announced that it would be holding global investor calls today for a 10 year green covered bond, but did specify neither a deal size nor the lead managers.

A syndicate banker away from the leads said that following a successful €500m no-grow seven year transaction from Austria’s Hypo Noe on Tuesday that achieved the tightest spread on a euro benchmark since 6 March, it was only a matter of time before a deal hit the 10 year bracket.

“As we all know, if you need liquidity there are better ways than covered bonds at the moment,” he said, “but if you want to raise long term funding, this is the perfect event – there is a positive market backdrop and it will be very interesting to see what the re-offer spread on it is.”

He expects the deal to emerge tomorrow, subject to market conditions, and said that although the issuer is well established, the two day process is suitable given the green format.

“I think it will go down quite well,” he said. “Rather than do the intraday, all the true green investors are alerted and can do their homework on the name, so they should secure some additional demand.”

The last green covered bond was a €1bn 10 year from Société Générale SFH on 29 January, and the last ESG-focused covered bond was a €1bn five year from Caffil on 7 May that was the first with use of proceeds linked to the Covid-19 crisis and attracted over €4.5bn demand.

The BPCE group has issued a variety of green and social bonds since debuting in the field in 2015, but tomorrow’s deal will be its first green covered bond.

The proceeds are earmarked for the refinancing of residential mortgage loans on energy efficient properties. As with most green covered bonds, the buildings must be among the 15% most carbon efficient in their jurisdiction, and BPCE’s methodology uses the year of construction as a proxy for this, with a 2012 regulation meaning that all new buildings since 2013 achieve a level of A or B in the French energy performance certificate (EPC) scheme. According to BPCE, some €6bn of loans are eligible for BPCE SFH’s cover pool.

The syndicate banker said that whether the expected euro benchmark comes in negative or positive yielding is on a “knife’s edge”, but that ultimately this aspect will not prove a dealbreaker for the majority of investors.

“On the margin it might help keep some in the book slightly longer if they keep it ever so slightly above zero,” he said, “but the re-offer might be around 18bp-20bp, as its five year from March is at around 11bp.”

BPCE SFH’s last euro benchmark was a €1bn five year transaction on 24 March, re-offered at 40bp over mid-swaps. Hypo Noe’s seven year on Tuesday was priced at 19bp over mid-swaps and a yield of minus 0.038%.

Axa Banque Europe SCF, meanwhile, tapped a €500m April 2033 issue for €250m today. After announcing the mandate this morning, sole lead BNP Paribas reopened the €500m April 2033 issue with guidance of the mid-swaps plus 23bp and priced the €250m at 23bp.

Another syndicate banker said there are not yet any further covered bonds in the pipeline for this week, noting that given the Ascension Day public holiday across much of continental Europe on Thursday, supply across all asset classes will be frontloaded between today and Wednesday.

“I would’ve anticipated that more people would have come out this morning,” he said, “not necessarily in the covered bond format, but in all formats. But then again, FIG supply excluding covereds is ahead of last year’s figures, so I don’t think there’s any pressing need for people to squeeze out anything unless they feel particularly comfortable with levels.”

Given that covered bond spreads have been tightening by the day, some issuers may be waiting on the sidelines until levels are even tighter before approaching the primary market, he suggested.

“There’s probably a little feeling that if you push the button right now, even though you may get a trade done, you might be overpaying compared to where spreads are going to be in one week or two,” he said.