Bank of Nova Scotia is adding a £250m no-grow three year FRN to a Eu1.25bn (C$1.75bn) three year covered bond launched today (Tuesday), breaking with the recent series of five and seven supply to become the tightest Canadian euro benchmark, and inside US dollar levels.

The last four euro benchmarks – all issued last week – were in the seven year maturity, with five and seven year issuance having dominated supply for over a month. The last three year euro benchmark was a Eu500m three year mortgage Pfandbrief for Aareal Bank at 10bp through mid-swaps on 10 September.

A banker at one of Bank of Nova Scotia’s leads also noted that all of some Eu11bn of Canadian covered bond supply in euros this year has been in the five and seven year maturity – including euro benchmarks from BNS in March and September.

“So it was time to do something different,” he said. “Three years looked compelling from a pricing perspective, and there was an opportunity to get away from the belly of the curve, which has felt a bit toppy.”

The rarity of the maturity mean that there was a lack of comparables, he said, although the leads looked at some older deals, such as outstanding Scandinavian bonds, for example a DNBs at less 9bp, and a Royal Bank of Canada 4.625% January 2018 launched in 2008 that was at around less 6bp. A Eu1.5bn seven year Bank of Nova Scotia issue launched in September was meanwhile bid at around 4bp over mid-swaps.

Leads Barclays, Deutsche, HSBC, JP Morgan and Scotiabank went out with initial price thoughts of the 2bp through mid-swaps area and after taking some Eu1.6bn of indications of interest set guidance of the 3bp through mid-swaps area. The book remained at around Eu1.6bn with little price sensitivity, said the lead banker, allowing for pricing at 4bp through mid-swaps – the tightest ever level for a euro benchmark Canadian covered bond.

A syndicate official away from the leads said that 4bp through was in line with what he would have expected.

“It is interesting that they managed to get a decent level of demand for what is their third euro benchmark in reasonably quick succession,” he said. “It is a nice trade that builds out their curve.

“They are offering investors something a little bit different and that is probably why they are not having to pay up for the amount they have done in euros.”

He agreed that three year data points are “few and far between”, but also that 4bp through for the three years probably made sense in the context of the BNS seven year being at 4bp over.

He noted that unusually the pricing of the euro benchmark was tighter than what could be achieved in the dollar market.

“One would typically think that in all asset classes the US market offers better levels in this part of the curve,” he said. “But here euros is actually beating dollars.”

He said that a new three year dollar benchmark would probably come at 23bp-25bp over mid-swaps in dollars, whereas the euro came at the equivalent of 20bp over.

Meanwhile, during BNS’s euro bookbuilding some sterling reverse enquiries emerged, according to the lead banker, and although BNS has limited funding needs, it was keen to entertain such demand. The issuer therefore went out with a £250m (Eu317m) no-grow three year floating rate note via the same leads, going straight to guidance of three month Libor plus 20bp – equivalent to the 4bp through mid-swaps level of the euro benchmark – without an IPTs stage due to the lateness in the day, he said.

After attracting demand of more than £500m, the pricing was set at three month Libor plus 19bp. Canadian peer Toronto-Dominion Bank sold a £900m three year floating rate note at a level of 20bp on 12 September, and this was bid at 18bp today.

The lead banker said that BNS had achieved a “very nice result”.

He identified as the last dual currency transaction a CM-CIC Home Loan deal in April 2013 that started out as a Eu1.25bn seven year issue that was joined by a £250m three year FRN.

A banker away from the leads said that, given BNS’s limited needs, he had expected it to be able to tighten pricing inside the 20bp guidance and also to find up to £500m of demand. He noted that in spite of a burst of sterling three year FRNs in September there has overall been limited short dated supply in sterling.

Despite breaking with recent five and especially seven year supply, Bank of Nova Scotia’s deal continued the dominance of non-Eurozone and therefore non-CBPP3-eligible supply since the European Central Bank’s programme started – it is the seventh non-Eurozone euro benchmark in a row since the last Eurozone euro benchmark, which was launched two weeks ago.

However, some syndicate officials were today (Tuesday) increasingly optimistic that Eurozone supply is around the corner and set to provide a first test of how Eurosystem central banks behave in the primary market. One said that, “fingers crossed”, both core and peripheral supply could emerge by the end of the week.