CIBC attracted over Eu2.5bn of orders to a Eu1.25bn six year issue today (Monday) that is only the second negative yielding euro benchmark covered bond, and bankers said the deal’s momentum proves investors are comfortable with such issuance regardless of jurisdiction or maturity.

Berlin Hyp in March priced the first negative yielding benchmark covered bond, a Eu500m three year Pfandbrief, then Deutsche Hypo last Friday launched a Eu250m tap of a February 2023 issue that attracted over Eu1.3bn of orders while offering a yield of minus 0.0771%.

Canadian Imperial Bank of Commerce leads CIBC, Commerzbank, Danske and HSBC launched today’s six year issue at 9:50 CET this morning with initial price thoughts of the 10bp over mid-swaps area, before guidance was at 11:25 set at the 7bp area, plus or minus 1bp will price within range, on the back of over Eu2bn of orders. The deal was then re-offered at 6bp, with the book closing in excess of Eu2.5bn pre-reconciliation, before the size was set at Eu1.25bn (C$1.79bn).

With the six year swap rate at around minus 0.06% this morning, bankers away from the leads noted during the execution process that the deal could potentially have been priced with a negative yield.

“It is going to be very close to zero, if not negative,” said one. “With a spread of 6bp it should be very marginally positive, but any fluctuation in the swap rate could change that.”

The deal was ultimately priced at 100.054 this afternoon with a zero coupon to yield minus 0.009%.

“We have seen now that investors are comfortable with negative pricing – be it Germans or Canadians, Eurozone or non-Eurozone, shorter or longer,” said another syndicate official. “Deutsche Hypo’s tap went very well, and with books over Eu2bn at the first update CIBC clearly had no problems even though there was a question mark over which side of zero it would land.

“We are looking at potentially a new dynamic in the covered bond market.”

Stadshypotek on 13 June priced the previous lowest-yielding non-Eurozone benchmark covered bond, a Eu1bn six year with a coupon of 0.05% and a yield of 0.098%.

Syndicate officials said CIBC’s deal offered a new issue premium of around 1bp. They cited CIBC October 2019s and January 2020s – the issuer’s longest dated euro outstandings – at flat, mid, while 2022-2023 paper from fellow Canadian issuers Toronto-Dominion, Bank of Nova Scotia, Bank of Montreal and Royal Bank of Canada all traded at 4bp-5bp.

“They offered around 5bp at the start, which is understandable given the yield, but the momentum allowed them to tighten to a pretty slim 1bp,” said a syndicate official away from the leads.

Bankers noted this premium is nevertheless larger than those offered by a recent wave of German benchmarks and taps, which were seen pricing flat to or inside of the respective issuers’ secondary curves.

The new issue is the tightest priced benchmark euro-denominated Canadian covered bond with a maturity of six years or longer since June 2015, when RBC priced a June 2022 issue at 2bp over mid-swaps.

The deal is CIBC’s first euro benchmark covered bond since December, when it sold a Eu1.25bn December 2018 issue. The Canadian issuer priced a £250m (Eu299m, C$427m) three year issue in March, which it then tapped by £250m on 8 July, and a A$400m (Eu274m, C$393m) five year in April.