Canada’s Bank of Nova Scotia has sold the first US targeted benchmark covered bond since the end of June, a $2bn five year 144A issue that was seen as a testament to the US market’s resilience.

The last 144A covered bond was a $1.25bn three year HSBC issue that was sold at 58bp over mid-swaps on 28 June. Caisse Centrale Desjardins du Quebec was the last Canadian issuer to tap the US market, pricing a $1bn five year at 45bp over on 17 March.

Joint bookrunners Bank of America Merrill Lynch, Barclays Bank, Morgan Stanley, Bank of Nova Scotia and UBS whispered BNS’s issue in the low 40s yesterday (Tuesday) morning, and then set guidance at the 42bp over mid-swaps area, according to a syndicate official at one of the leads.

Order books were open for a couple of hours, reaching around $2.5bn, with pricing fixed at 41bp over mid-swaps, he said. The spread over US Treasuries is understood to be 69bp.

“I’m pretty sure that everyone is happy with a deal where the original intention was to issue between $1bn-$2bn, which reached an order book of $2.5bn,” he added. “Traditional covered bond buyers embraced the product. The investor base also continued to expand with more Asian and European investors.”

Comparables included a Bank of Nova Scotia October 2015 issue at 39bp over and a CIBC January 2016 trading at 42bp over, according to the syndicate official.

A syndicate banker away from the leads said that Bank of Nova Scotia was an ideal issuer to reopen the US market given its high credit quality, its cover pool (comprising exclusively CMHC-insured mortgages), and the deal’s link to Canada as the sovereign.

The leads will have done the necessary work to prepare the deal and obtained the confidence to go ahead, he said, adding that the transaction was a sign that the US market is open to the right names.

“From an outsider’s perspective it seems to be a successful trade,” he said.

Another syndicate official was similarly complimentary of the transaction, highlighting that it was to his understanding executed in one day and priced roughly flat to the issuer’s curve.

And although investors were beginning to show signs of unease about the outcome of discussions to raise the US debt ceiling, BNS’s trade as well as recent long dated senior unsecured issues from US banks were demonstrating the resilience of the US market in comparison with the European situation, he added.

He said he saw no reason why other Canadian issuers would not also be able to tap the US market, noting that they have established curves and collateral that is viewed favourably.

“Canada is one of the last bastions of the true, true safe havens,” he said.

Dead as a dodo in primary, but life in secondary

The outlook for a resumption of euro benchmark supply remains poor, according to syndicate officials, with one describing the market as choppy. Spain, for example, today (Wednesday) widened by around 15bp.

According to Natixis research Banco Popular Español recently tapped a 4.5% February 2013 cédulas by Eu100m.

There is still some turnover in the secondary market, however, according to a syndicate official, who said that some of the flows were interesting. German asset managers had been buying some Italian paper, despite issuers such as the national champions trading up to 50bp through the sovereign, he said, adding that the repo market for Italian debt was getting more “testing” and that investors seemed to be looking at such purchases on an outright yield basis. There was also some buying of Scandinavian covered bonds in the secondary market, he said.