Bank of Montreal is targeting launch of an inaugural legislative covered bond tomorrow (Tuesday) while a Swedish deal could also emerge this week, with the market unfazed by increased tensions over Ukraine and with unsecured deals already out.

Tensions have been mounting over the crisis in eastern Ukraine, with the US and the EU preparing to impose new sanctions against Russia as pro-Kremlin separatists have detained foreign observers. However, syndicate officials this morning said the financial markets appeared untroubled by the latest developments in Ukraine.

“New issue activity remains good,” said one.

Banco Espírito Santo and JP Morgan kicked off FIG supply this week in euros with new issues in the senior unsecured market, while corporate borrowers are also out today. Syndicate bankers said the BES transaction was not attracting as much demand as they would have expected, although one noted that the deal offered a limited new issue premium.

In covered bonds, Bank of Montreal announced the mandate for its inaugural euro legislative issue this (Monday) morning, with Barclays, BMO, Commerzbank and HSBC tasked to lead manage the transaction.

The leads are spending today gathering feedback from investors and the aim is to bring a transaction tomorrow, according to a syndicate banker on the mandate. The issuer is not going on a roadshow, having met with investors over the past weeks and months in a non-deal capacity, he added.

Bank of Montreal last tapped the benchmark covered bond market in January 2012, with a US$2bn (Eu1.44bn, C$2.2bn) five year transaction. It is one of two legacy Canadian issuers yet to issue since covered bond legislation was introduced in Canada, in the summer of 2012; Toronto-Dominion Bank is the other, having yet to have a programme approved by the administrator of the legal covered bond regime, Canada Mortgage & Housing Corp.

Bank of Montreal is expected to come with a five or seven year maturity, with outstanding deals from Bank of Nova Scotia, Royal Bank of Canada and CIBC serving as comparables. Bank of Nova Scotia tapped the euro benchmark market most recently, with a Eu1bn five year that was priced at 9bp over and is trading at around 8bp over, according to syndicate bankers.

A syndicate banker at one of the BMO leads said that a Eu1bn August 2018 CIBC issue from July last year is trading at 1bp over, while an RBC October 2018 is at around 5bp over.

Besides supply from Bank of Montreal, covered bond issuance this week could also come from a Swedish issuer, according to syndicate officials. SEB and Swedbank are no longer in blackouts after having reported results on Friday and this morning, respectively, while Nordea will announce its first quarter results tomorrow and Svenska Handelsbanken its on Wednesday.

A syndicate banker said that the basis swap is slightly in favour of euros to Swedish issuers, and that the five to seven year maturity range “looks reasonable”.