RBC returned swiftly to covered bonds today (Friday) to sell a Eu1.5bn five year issue after having priced a £350m FRN yesterday, and attracted Eu2.3bn of orders at a slim premium. A mix of supply including apoBank is expected next week, after the busiest start to a year since 2011.

Royal Bank of Canada’s new euro issue comes after it priced a £350m (Eu443m, C$667m) FRN at 50bp over three month Libor yesterday. Shortly after pricing the deal on Thursday afternoon, the issuer announced a mandate for the euro issue.

RBC leads Crédit Agricole, Deutsche, LBBW and RBC launched the five year 144A/Reg S issue this morning with guidance of the 26bp over mid-swaps area, with the books reaching Eu1.5bn after just over half an hour. Guidance was then revised to the 23bp area, on the back of over Eu2bn of orders, before the deal was re-offered at 21bp with the books in excess of Eu2.3bn. The size was then fixed at Eu1.5bn (C$2.26bn).

“We received very little price sensitivity at the 23bp area, and ultimately the issuer decided to tighten to 21bp, where we were able to comfortably print Eu1.5bn, which is a nice liquid size,” said a syndicate official at one of the leads. “All round, this is a good result.”

The deal is RBC’s biggest euro benchmark covered bond since October 2013, when it printed a Eu1.5bn 2018 issue.

Syndicate officials at and away from the leads said fair value for the new issue was 18bp-19bp, seeing RBC December 2020s and Toronto-Dominion January 2021s both at 18bp, mid.

“To get a new issue premium of around 2.5bp versus the mid, and arguably even around flat to the bid, is an outstanding result,” said the lead syndicate official.

A syndicate official away from the leads agreed.

“It’s a fairly slim premium for a Canadian issuer, but that shows how strong this market currently is,” he said. “From 26bp to 21bp arguably looks like a big jump, but the books are substantially good.”

Syndicate officials away from the leads said the 21bp spread is equivalent to a spread of 70bp in sterling, and estimated that a five year sterling issue would have been priced at around 65bp.

“So it’s 5bp back, but then they have taken a much larger size,” said one. “It’s interesting timing to follow up the sterling deal so soon, but it makes sense while both markets are there, and they’ve got a good chunk of funding done in two days at reasonably attractive levels.”

The lead syndicate official said the issuer had opted against launching a dual tranche euro and sterling issue in order to focus on each market.

“The sterling market is of course a completely different market to euros, so there is no issue in following up so soon,” he said. “You can obviously tap both markets at the same time, but it is cleaner to focus on the two separately so that is what we did.”

The lead syndicate official said the issuer and its leads were encouraged to go ahead when the markets opened positively on Friday morning, with equities up and credit indices seen reversing widening from earlier in the week, and after a Eu1.25bn short five year issue for Nationwide had gone well yesterday.

RBC’s new issue took euro benchmark covered bond supply to Eu8bn this week, with eight issuers from a variety of jurisdictions tapping the market, and syndicate officials said a string of encouraging results across the spectrum will likely encourage further issuance next week, with conditions expected to remain supportive.

“We have seen short Pfandbriefe, big jumbo trades, Nordics and the return of peripherals, all of which have gone well,” said a syndicate official. “Based on these deals, you have to say if you are a core European issuer there is no reason to not come to the market now.

“Peripheral issuers may have to take stock. The most recent non-core deals have paid premiums of around 20bp but those premiums are probably not going anywhere quickly, given some of the headlines and geopolitical and event risks in these countries, so I would expect more peripheral issuers to come forward in the next weeks too.”

Banco Popular yesterday sold a Eu1.5bn seven year cédulas that was the first peripheral benchmark since 1 February.

Another syndicate official noted that senior supply had been limited this week, and said the covered bond market will continue to provide the most viable option for many issuers.

“We’ve seen this week in covereds that anything works as long as you’re sensible, whereas some issuers still won’t be able to access the senior market, which offers little stability,” he said. “This week’s covered supply has set up a good platform for more next week.”

Following investor meetings, Deutsche Apotheker- und Ärztebank (apoBank) is expected to tap the market at the beginning of next week, with the announcement of a mandate for a Eu500m no-grow seven year mortgage Pfandbrief this afternoon. Commerzbank, DZ, NordLB and UniCredit are leads.

Yesterday’s euro benchmarks for Banco Popular and Nationwide took year-to-date supply past that of the corresponding period of 2012 to make the start of this year the busiest since 2011. Including RBC’s Eu1.5bn today, year-to-date euro benchmark supply is Eu46.5bn, more than 50% up on the Eu29.5bn of January and February last year.