Royal Bank of Canada sold the first US dollar benchmark covered bond of 2015 yesterday (Thursday), a $2bn (C$2.51bn, Eu1.77bn) five year issue that came at a level equivalent to what bankers said could have been achieved in euros thanks to movements in the euro-dollar basis swap.

They noted that over the past month the euro-dollar basis swap has moved in favour of dollar issuance, with the move exacerbated since the announcement of the ECB’s sovereign QE programme last week.

RBC meanwhile held off approaching the market ahead of the announcement on Thursday of last week (22 January) of the acquisition in the US of City National Corporation for around $5.5bn. According to a syndicate official at one of the leads – Goldman Sachs, RBC and UBS – this contributed to RBC’s absence from a string of euro and sterling issues from its fellow Canadians earlier this month. The deal also comes ahead of RBC entering its quiet period on Monday ahead of results on 24 February.

He said that, with RBC now ready to approach the market and in light of the basis swaps moves, it was considered fitting for RBC, which has an SEC registered programme and established curves across a variety of jurisdictions, to launch the first dollar benchmark covered bond of the year rather than following in its peers’ footsteps. He added that the issuer had also received some reverse enquiries from large institutional investors active in US covered bonds, giving it the confidence to proceed.

The leads went out with initial price thoughts of the mid-40s over mid-swaps and then went straight to 44bp for a $2bn size. The lead syndicate official said that the issuer could have priced the new issue slightly tighter, but chose to go for size.

Bankers said that the 44bp over level in dollars was equivalent to around 7bp over mid-swaps in euros, which they said was in line with where RBC would likely print a five year euro benchmark. Canadian Imperial Bank of Commerce sold a Eu1bn five year issue at 5bp over mid-swaps on 21 January after Bank of Montreal had sold a Eu1.5bn five year at 6bp over six days earlier, and a banker said that RBC might price a new issue a touch back of these were it seeking to raise $2bn equivalent, Eu1.77bn, and because RBC is a more frequent issuer in euros.

“The fact that dollars can be competitive with euros without having a buyer like the ECB active is testament to the attractiveness of the dollar market,” said the lead syndicate official.

RBC last tapped the dollar market with a covered bond in mid-September, with a $1.75bn five year deal at 27bp over mid-swaps. The lead syndicate official said that September 2019 issue was quoted at around 36bp over before the new issue was announced and he said that, with the curve between the old and new five year issues worth a handful of basis points, the new issue concession was 2bp-3bp, which he added was on a par or less than that being paid in the euro market.

He said that orders totalled almost $2.5bn and the book comprised some 80 accounts, which he said was at the upper end of that typically seen on similar deals. Around two-thirds of the paper was sold to onshore US accounts, he added, and about half went to banks.

The lead syndicate official added that non-US financial institutions issuing in dollars, in other formats than covered bonds, had achieved mixed results this year, so a familiar Canadian name was a sensible choice.