Société Générale SFH generated the biggest order book of the year for the biggest euro benchmark transaction of the year on a €3bn six and 12 year trade today (Tuesday),  with the 12 year tranche reopening the long end after two months, while the Eurosystem maintained a 30% order.

After a mandate announcement yesterday (Monday), SG SFH leads BayernLB, CaixaBank, DZ, ING, NatWest, Santander, SG and UniCredit this morning went out with guidance of the 9bp area for May 2028 euro benchmark and the 17bp area for a May 2034, expected ratings triple-A. After around an hour, they reported combined books above €4bn, excluding joint lead manager interest, skewed towards the six year. After a little over two hours, the spread on the six year was fixed at 4bp on the back of books above €3.8bn, and the 12 year at 13bp on more than €2bn of demand. The six year was then sized at €1.75bn and the 12 year at €1.25bn, with books good at guidance, pre-reconciliation and excluding JLM interest, above €4.5bn and above €2.75bn, respectively, for a combined total above €7.25bn.

A syndicate banker away from the leads said the deal surpassed expectations in terms of both size and price, putting the new issue premium of the six year at around 2bp and the 12 year around 3bp, noting that SG trades at the tight end of the French market based on its historic rarity in the market. According to comparables circulated by a lead this morning, SG SFH January 2028s were at mid-swaps plus 0.2bp, mid, its February 2029s at plus 3bp, and its February 2031s at plus 4.3bp, while Crédit Agricole May 2034s were at 8.5bp and BPCE January 2035s at 10.5bp.

SG’s 12 year tranche is the longest-dated euro benchmark since a €750m 15 year for ING on 10 February – with all supply since Russia’s invasion of Ukraine having been of eight years or shorter – making its outcome all the more impressive.

“It really comes down to the fact that we haven’t seen long dated covered bonds with the new level of rates associated to them,” said the syndicate banker. “Now we are talking about something that is quite juicy on a yield basis versus what it was, say, four months ago.

“That is really changing the dynamic around it – you can finally get back to having a real insurance bid, for instance, which was not the case for quite some time.”

He said the leads could have started with slightly tighter guidance for the six year, but that that the 9bp area suggested they were prioritising size from the outset.

The outcome of the trade and a sub-benchmark for Oberbank today (see below) had also been awaited for evidence whether or not the Eurosystem would cut its CBPP3 order from 30% to 20%, with their settlement dates being the first in May, and a banker at one of the leads said there was no change as of today.

The French bank announced its mandate yesterday in the wake of the re-election of Emmanuel Macron as French president on Sunday, and another syndicate banker said it made sense for SG to wait, with the outcome likely stronger than it might have achieved ahead of France’s second round of voting.

“That would have provided investors with the perfect excuse to pass on a trade,” he added.

SG’s dual-tranche transaction is the biggest euro benchmark trade of 2022, with the previous largest having been a €2.75bn single-tranche, five year for Bank of Montreal on 19 January.

Aareal Bank is expected tomorrow with a short seven year mortgage Pfandbrief via BayernLB, BNP Paribas, Deutsche, DZ, Helaba and Natixis, following a mandate announcement today. The benchmark covered bond will be Aareal’s second of the year after a €750m eight year on the first working day of the year, 4 January.

Aareal mandated a four year Reg S dollar benchmark in early March, but did not proceed with a transaction, while the bank has been the subject of takeover developments. It now looks set to be taken over by a consortium led by Advent International Corporation and Centerbridge Partners under a renewed offer after an unsuccessful attempt that ended in February. ABN Amro analysts noted yesterday that the issuer intends to maintain a rating of at least A- from Fitch. The mortgage Pfandbrief issue has an expected rating of Aaa from Moody’s.

According to pre-announcement comparables circulated by the leads, Aareal September 2028s were quoted at minus 1bp, mid, and its February 2030s at plus 1bp.

A banker away from the leads said that, in the wake of the outcome of SG’s six year, and given the likely lower size of Aareal’s transaction, it will be interesting to see if the German can squeeze its new issue premium towards zero, saying he does not expect the takeover talk to affect the outcome in that respect.

Bankers said SG’s success should spur interest from further issuers in approaching the market.

“SocGen proved that the market is extremely strong,” said one, “and the market is wide open, so I would expect more supply to come.

“But at the same time,” he added, “lots of them are going to be in blackout or are in blackout, so it will only be from those who are not constrained in that way.”

Leads DZ, Erste and Helaba launched a €250m no-grow seven year mortgage Pfandbrief for Oberbank this morning, after it was announced yesterday. Following guidance of the mid-swaps plus 15bp area, the May 2029 issue, expected rating triple-A, was priced at plus 10bp on the back of a book above €750m good at guidance, including €70m of joint lead manager interest.