RBC on Tuesday launched the largest ever domestic Canadian covered bond, a C$2.2bn (Eu1.63bn, US$1.72bn) five year two-tranche transaction that is the first domestic deal since Canada’s legislative framework was finalised and which attracted many new investors to the product.

The deal is also the third-largest covered bond transaction this year, after a Eu2bn Nordea Bank Finland two-tranche issue on Tuesday of last week (10 March) and a US$2bn five year Royal Bank of Canada deal on 29 January that is the largest single-tranche covered bond issue of 2015.

RBC is the only Canadian issuer to have sold covered bonds in its home currency and last did so in March 2011 with a C$1.1bn deal that was the previous largest issue. Since then Canadian covered bond legislation was introduced and related regulations were finalised in late 2012, meaning that this week’s RBC issue is the first under the new framework.

“It’s another little piece of history for the fixed income market here in Canada,” said Peter Hawkrigg, managing director at RBC Capital Markets.

Tuesday’s transaction, led by RBC CM, was split into C$1.5bn floating rate and C$700m fixed rate five year tranches priced at BAs plus 36bp and Government of Canada plus 77bp, respectively.

“This is the fourth time that we have accessed the Canadian dollar covered bond market and each time the deal has been larger than the previous,” said David Power, vice president, corporate treasury, at RBC. “We are pleased to see this continued development.”

Forty-two investors participated in the issue and 27 of these were accounts that had not bought RBC’s Canadian dollar covered bonds before, according to Hawkrigg.

“We are delighted to see that universe start to broaden out,” he said.

The transaction had strong domestic participation along with notable international follow-on demand from a mix of asset managers, insurance companies and banks, said Hawkrigg. He said the inclusion of covered bonds as HQLA in LCRs would likely have driven some of the new participation.

According to Hawkrigg, the new issue came about as the result of a reverse enquiry for a high quality covered bond around which the two-tranche issue was then built.

The funding achieved by RBC via the covered bond was around 15bp tighter than bank domestic deposit notes, he said.

“In our view, it was in line with the most attractive funding market for RBC globally,” said Hawkrigg.

The level is understood to have been equivalent to around 11bp through mid-swaps in euro equivalent terms.

It remains to be seen if RBC will continue as the only Canadian bank issuing covered bonds domestically or if it will be joined by its peers.

“It’s something they should take a look at,” said Hawkrigg. “I think they could be very interested in what we have done and if there is an opportunity to do likewise.”