BPCE reopened the market with a €1.5bn long nine year green covered bond today (Tuesday), showing the market to be “well functioning” after a reversal last week, although syndicate bankers said its success and pricing could have mixed implications for supply prospects.

Today’s new issue is the first euro benchmark since a €500m 20 year deal for RLB Steiermark struggled last Tuesday amid rates volatility and a reevaluation of the asset class, with no further supply following last week after the Austrian and Singapore’s UOB tapped the market. A syndicate banker on today’s BPCE SFH trade said it was therefore a “test balloon” for the market.

Leads Barclays, BayernLB, Deutsche, DekaBank, DZ, JP Morgan, Natixis and Santander went out this morning with initial guidance of the mid-swaps plus 8bp area for a December 2030 green euro benchmark, rated Aaa/AAA (Moody’s/S&P). After an hour and 20 minutes, books were above €1.5bn, including €200m of joint lead manager interest. After around two hours, books were above €2bn, including €200m JLM interest, and the final re-offer was set at 5bp for an expected size of €1.25bn-€1.5bn. The deal was ultimately sized at €1.5bn on the back of €2.6bn of demand, including €200m JLM interest.

Syndicate bankers at and away from the leads put fair value at around 2bp, with BPCE January 2029s at 1.5bp, mid, green May 2030s at 1.5bp, and March 2031s at 3bp, according to pre-announcement comparables circulated by the leads – although they also noted that screen prices have been unreliable amid the volatility. The 5bp re-offer therefore implied a new issue premium of around 3bp – following a starting pick-up of 6bp – compared with pricing around flat to fair value for many trades before last week’s reversal.

“Given last week’s moves, the idea was to start with a spread that responds to what has happened with secondaries and then see where we go from there,” said the lead banker. “We then set the spread and the expected size at the same time to give investors good guidance, which they appreciated and which led to a very supportive response.”

The lead banker said the outcome showed the market to be well functioning, and a syndicate banker away from the leads said BPCE had adopted the correct approach in light of market conditions. However, he cautioned against issuers rushing to follow, noting that FIG issuance activity was picking up sharply this week.

“I have a feeling that more and more issuers are trying to squeeze their issuance through what might be a bottleneck window,” he said. “Last week’s situation is still in issuer’s minds and some of them want to make use of this still very favourable spread environment, so we might see a bit more issuance to come for this week.”

But another syndicate banker said the pricing of BPCE’s new issue could diminish supply prospects. He noted that the pricing was some 5bp wider than the French issuer might have achieved just a fortnight ago, given that it sold a €500m non-green 10 year covered bond at mid-swaps flat on 8 March.

“This just crystalised the spread widening,” he said. “It has pushed a couple of issuers who were in the pipeline with long-dated projects to hold off until next week.”

BPCE’s lead banker acknowledged that the new issue had brought the new pricing levels into focus, but said they should not frighten off issuers.

“It very decently showed that it’s not the end of the world,” he said.

Indeed, Westpac NZ has mandated an intermediate maturity euro benchmark, which is expected to hit the market tomorrow (Wednesday), subject to market conditions. (See separate article.)