CIBC sold the tightest ever Canadian covered bond yesterday (Wednesday), a Eu1bn five year issue, on the back of strong oversubscription, and an official at the issuer said that it had benefited from its timing – even if a smaller deal at an even tighter spread was not on the table.

With a total order book of Eu2.3bn, the deal had the highest oversubscription multiple for a Canadian covered bond since CIBC’s first issue off its legislative programme, a Eu1bn five year sold in July 2013, which attracted some Eu3bn of orders.

Some Eu1.8bn of indications of interest are understood to have come in during an initial price thoughts phase at a level of the low single-digits through mid-swaps. Leads CIBC, Commerzbank, HSBC, Natixis and RBS then surprised some market participants by dispensing with “area” guidance and moving straight to setting pricing at mid-swaps flat for the bookbuilding phase.

Wojtek Niebrzydowski, vice president, treasury, at CIBC, said that this was because it became clear from investors’ feedback that a smaller deal at a tighter spread than mid-swaps flat, which had been an option, was not possible.

“We had the flexibility of doing a Eu1bn transaction or a smaller transaction, which over the last year or two has become more acceptable,” he said. “But sufficient price elasticity may not have been there to have enabled us to benefit from doing a smaller transaction, so as we were comfortable with Eu1bn at flat in the context of the book rather than go through additional steps we decided collectively, let’s just go to final pricing and close the transaction.”

The issuer nevertheless achieved the tightest level for a euro benchmark covered bond from a Canadian issuer. The previous tight was set by Bank of Nova Scotia on 10 September with a Eu1.5bn seven year at 4bp over mid-swaps. CIBC’s five year benchmark in July 2013 was priced at 9bp over.

“We have said before that the euro market is of importance for the obvious reasons and that it’s desirable to have a periodic presence there,” said Wojtek Niebrzydowski, vice president, treasury, at CIBC. “We have been considering another euro trade for most of the year, but the timing needed to reconciled with the banks’ overall funding needs, which ultimately ended up leading to October rather than earlier in the year.

“From the standpoint of issuance costs, waiting for longer rather than jumping in earlier in the year ultimately proved to be beneficial,” he added.

A syndicate official away from the leads said that the pricing of mid-swaps flat, which was widely seen as being in line with fair value, and strong demand would likely result in a strong secondary market performance for the new issue.

“We have been consistent with the first trade under this programme and what we have generally done in the past,” said Niebrzydowski, “in that we do believe that in the long term it is good for the issuer to really leave some room for the deal to perform, everything else being equal. Obviously we don’t want to leave too much on the table, but there is usually some kind of compromise that one tries to get to in that context.”

Germany, Austria and Switzerland took a combined 43%, the UK and Ireland 28%, Nordics 9%, France and the Benelux 7%, Asia 6%, other Europe 2%, and others 5%. Banks were allocated 54%, central banks and official institutions 19%, fund managers 19%, corporates 4%, and insurance companies and pension funds 4%.

Another syndicate official away from the deal said that it reaffirmed that non-euro-zone issuers are benefiting indirectly from the tightening market in light of the ECB’s third covered bond purchase programme.

“Keep bringing the transactions,” he said. “Demand is exceptionally good and I wouldn’t be surprised to see more people coming, although some have issues with blackouts while others will be looking at next year’s needs already.”

Fellow Canadian Caisse centrale Desjardins du Quebec had finished a roadshow before CIBC announced its issuance plans, but did not issue as it was finalising its preparations. It is nevertheless expected next week with a euro benchmark via Barclays, Crédit Agricole and DZ.