Swedbank Hypotek announced a mandate for a five year US dollar covered bond this (Friday) morning, after Scotiabank yesterday issued $2.75bn in two tranches as market participants weighed the possible impact of Canadian legislation expected soon.

Bank of America Merrill Lynch, Deutsche Bank, JP Morgan and UBS are marketing Swedbank’s deal with initial price thoughts of the 105bp over mid-swaps area.

“The guidance is probably a little bit cheaper than where it would price in euros,” said a syndicate official away from the leads.

He put the euro equivalent at 45bp over and said he would expect the deal to come at the equivalent 40bp over in euros. However, a syndicate official at one of the leads said the 105bp over guidance was already at the equivalent of around 40bp over in euros.

He said that the deal would be officially launched US time today, although interest from European accounts had been sought this morning.

Fellow Swede Stadshypotek priced a Eu1.5bn five year covered bond at 30bp over mid-swaps on Wednesday.

Bank of Nova Scotia (Scotiabank) yesterday (Thursday) launched a dual tranche transaction, a $1.25bn three year at 28bp over mid-swaps and a $1.5bn five year at 45bp over. Leads Bank of America Merrill Lynch, Barclays Capital, Deutsche Bank, Scotia and UBS went out with guidance of 28bp-29bp over mid-swaps for the three year and 47bp over mid-swaps plus or minus 2bp for a five year.

BNS’s deal comes as market participants continue to weigh the possible impact of Canadian legislation expected at the end of this month preventing the issuance of further covered bonds being backed by cover pools using Canada Mortgage & Housing Corporation-insured assets.

A US covered bond banker said that Canadian covered bonds without CMHC-insured cover pools would come at least 15bp-20bp wider in three years, but noted that US dollar investors were not giving much credit to cover pools. He said that RBC covered bonds trade quite close to the bank’s senior unsecured paper, and that the differential would be less than 5bp.

Details about the Canadian government’s legislative framework for covered bonds are widely expected to be released as part of the budget at the end of March, and the banker said that several Canadian issuers are weighing up issuing before then.

The uncertainty over the shape of regulation was highlighted by a supplementary prospectus to BNS’s covered bond programme in January, where it amended the risk factors listed in the prospectus. It said that no assurance could be given whether the use of insured mortgages as collateral would be allowed, whether programmes would be permitted outside the legislative framework, and:

“Whether the issuer, assuming it is permissible to do so under the conditions of the covered bonds and the legislative framework, will look to exchange any existing covered bonds then outstanding for new covered bonds following the coming into force in Canada of such legislative framework.”

A syndicate official away from BNS’s leads suggested that this uncertainty could have cost the issuer “a basis point or two”.

Another market participant referred to the possibility of CMHC-insured cover pools no longer being permissible as a “cloud” hanging over the market, and raised the question of how long it would take for Canadian issuers to restructure their programmes, if needed. They could be absent from the market for some time as a result, he suggested.

He also wondered if the Canadian government would take a leaf out of the UK FSA’s book and mandate loan-level disclosure.