Bank of Montreal sold a $2bn three year benchmark yesterday (Wednesday) on the back of a nearly twice oversubscribed order book, coming ahead of a crucial meeting of EU politicians yesterday evening and an anticipated charge from Australian issuers in the coming weeks.

The deal takes 144A covered bond supply this year to just over $29bn, of which Canadian issuers have so far produced more than half.

Leads Barclays Capital, BMO, JP Morgan and Royal Bank of Scotland priced the 144A/Reg S issue at 50bp over mid-swaps, the tight end of guidance of the 52bp over area, off what is understand to have been an order book just shy of $4bn with good granularity.

The transaction was priced only hours before an EU crisis meeting in Brussels, with a syndicate official close to the deal saying that there had been questions about whether investors would want to hold off to see the outcome of the meeting and whether a deal would therefore be possible before the gathering.

However, he said that US dollar deals for banks such as Citigroup and Goldman Sachs this week, and some European corporate deals, had shown that accounts were willing to engage in new issues.

“The markets didn’t get in the way,” he added.

Citigroup and Goldman Sachs each sold $1bn of 10 year bonds on Tuesday.

Canada’s issuers go into blackout periods at the end of the month, with the “next wave” of supply expected to come from Australian banks, according to the syndicate official.

Australian financial institutions recently won approval to issue covered bonds after parliamentary approval of relevant legislation, with NAB the first to announce a US/Europe roadshow mandate, CBA quickly following suit, and Westpac and ANZ also understood to have mandated banks to carry out investor meetings. NAB will kick off proceedings on Monday.

A London-based covered bond banker said that after some negativity in the US market in recent weeks BMO’s trade could bring about some positive sentiment, even though “Canadians are always a fairly limited read-across”.

The re-offer spread incorporated a small new issue premium and the deal was oversubscribed and attracted key accounts, he said, making it a nice trade.

“Everyone’s trying to get ahead of Australia,” he said, adding that with the US dollar market offering better economics in dollars – on the basis of a five year maturity – and 144A transactions requiring lead time there could be “a bit of an unseemly rush in dollars”.

The last US market-targeted covered bond was a $1.4bn five year issue for National Bank of Canada on 12 October that was sold at 72bp over mid-swaps, and this was seen at around 68bp over before BMO’s deal was announced, according to a syndicate banker close to BMO’s deal.

A syndicate official away from the leads said that it had been well executed.

“It shows that even in turbulent markets Canada is still seen as a safe haven,” he said, “with people still looking at the CMHC collateral as pretty solid.

“Pricing at the tight end of guidance and the size of the order book speak volumes to Canada, BMO, and the US covered bond market.”

Six Canadian covered bond issuers have tapped the US dollar market this year, all of which have cover pools comprising mortgages backed by Canada Mortgage Housing Corp (CMHC), Canada’s national housing agency. Yesterday’s transaction was BMO’s second US dollar benchmark covered bond this year, coming on top of a $1.5bn five year sold on18 January.

The last European issuer to have sold a covered bond into the US was Norway’s Nordea Eiendomskreditt, which priced a $1bn five year at 120.88bp over US Treasuries on 15 September. The Covered Bond Report understands that this was a challenging transaction, and that other issuers that had been considering tapping the US market opted for euro issues instead given poor performance of some recent US dollar covered bonds.