CIBC yesterday (Monday) sold its third dollar benchmark of 2011, a $2bn three year issue that attracted $2.6bn of orders and was priced inside initial talk. Meanwhile, European banks’ funding pressures and last week’s central bank actions have led to volatile basis swap moves.

CIBC, HSBC, JP Morgan and Royal Bank of Scotland priced the 144A trade at 68bp over mid-swaps, equivalent to 111.2bp over Treasuries, after price talk of the 70bp over area. A syndicate banker on the deal said that orders amounted to around $2.6bn.

“The book was very well oversubscribed,” he said, “with some very high quality orders.”

US and Canadian investors took 66% of the bonds, Europe 31%, and Asia 3%, he said.

“It was received very well, and we were able to price 2bp inside price talk,” he added.

The deal is the first US dollar covered bond since controversial debuts for ANZ and fellow Australian bank Westpac, and the first Canadian benchmark since a $2bn November 2014 for Bank of Nova Scotia that was reoffered at 48bp over mid-swaps on 28 October.

Yesterday’s deal is CIBC’s third dollar benchmark of the year, coming after a $2bn five year sold in January and a $2bn 2014 issue launched in September.

A syndicate official said that the Australians’ covered bonds had traded at around 135bp over mid-swaps. ANZ and Westpac reoffered $1.25bn and $1bn five year deals, respectively, at 115bp over mid-swaps in the middle of November.

A syndicate banker on CIBC’s deal said that Canadian issuers “have a bit of a halo effect” in covered bonds. All Canadian banks except RBC sell covered bonds backed by assets guaranteed by Canada Mortgage & Housing Corporation.

A syndicate official away from the leads said CIBC’s deal was a good trade, with a size of $2bn becoming something of a theme for Canadian issuers. More than half of US dollar benchmarks sold by Canadian banks this year have been for $2bn, with CIBC’s the third in a row.

The syndicate banker said that the transaction had been driven by sizeable reverse enquiry, which helped provide confidence that a deal could be executed.

Syndicate officials away from the leads put the equivalent spread in euros in the low double digits through mid-swaps, with one saying that a wide basis swap, which on 29 November hit a record low of minus 77bp in three years, highlighted the extent of concerns about the European banking system.

Six central banks on Wednesday announced coordinated action to cut the cost of borrowing in dollars, which the syndicate banker said led to a sharp narrowing of the basis swap, from minus 77bp to minus 66bp.

“In basis swap terms that is a huge one day move,” he said.

However, a lack of swapped new issuance is preventing the euro basis swap from tightening further, he said.

European banks are swapping a “torrent of cash” from euros to dollars at they do not have access to US dollar funding, he said, while issuers such as EIB or KfW are “like salmon swimming upstream”, swapping new issuance from dollars into euros and benefiting from flows in the opposite direction.

US market access by European dollar supranational, sovereign and agency (SSA) issuers has been curtailed, he said, adding that it is unlikely that European covered bond issuers could tap the dollar market to take advantage of a wide basis swap, though any very positive news emerging from European Council and ECB meetings at the end of this week could possibly change this.

Another syndicate banker said that the funding advantage compared with euros meant Canadian issuers were unlikely to change their focus on the dollar market to turn to euros. He said that while US dollar spreads have widened, Canadian covered bond spreads have outperformed SSAs, gapping out by around 20bp compared with a widening of around 55bp for EIB, for example.