Bank of Montreal attracted over Eu2.2bn of orders to a Eu1.75bn seven year issue today (Thursday), offering only a marginal new issue premium while getting a bigger book and size than NBC sevens a fortnight ago, with bankers attributing the new issue’s success partly to a recent back-up in rates.

Bank of Montreal’s deal is the largest euro benchmark covered bond since 6 April, when ABN Amro sold a Eu2.25bn 15 year, and the biggest Canadian euro benchmark in over two years, since Toronto-Dominion issued a Eu1.75bn five year in July 2014.

After announcing a mandate yesterday (Wednesday), Bank of Montreal (BMO) leads Barclays, BMO, Crédit Agricole and Deutsche launched the seven year deal this morning with guidance of the 6bp over mid-swaps area, before revising guidance to the 3bp area on the back of Eu1.9bn of orders. The deal was then re-offered at 2bp and the size set at Eu1.75bn (C$2.56bn), with the book closing at over Eu2.2bn. Bankers said the deal was set to be priced with a 0.125% coupon.

“It’s a very nice transaction,” said a syndicate banker at one of the leads. “You had NBC doing a trade last month in the same tenor and at the same spread, but taking Eu750m from a smaller book.

National Bank of Canada’s (NBC’s) Eu750m seven year on 22 September – the last Canadian euro benchmark – was and priced at 2bp over mid-swaps with a zero coupon, on the back of over Eu1.4bn of orders.

“One of the most valid differences is that the rates environment has picked up since then, on the back of the ECB’s tapering comments,” added the syndicate banker, “and the higher yields have helped demand more generally, while the positive coupon, rather than a zero coupon, is obviously a plus for the trade.”

A syndicate banker away from the leads agreed.

“Just a few weeks ago the seven year was a challenging maturity,” he said. “We’ve since seen a massive back-up in rates – seven year swaps were as low as minus 5bp and are now up to 11bp – so now you can print in these medium maturities with a 10bp coupon, rather than zero, like the other Canadians.

“That’s why things are going better, and the seven year is clearly a deal that’s working very well right now.”

Bankers suggested that BMO may also have benefitted from a better reception as it is a more regular issuer in the covered bond market than NBC, and may be perceived as a slightly better credit.

Syndicate bankers at and away from BMO’s leads said the deal offered a new issue premium of around 1bp, seeing the NBC September 2023s at 1.5bp, mid, and also citing BMO September 2022s at minus 2bp and Toronto-Dominion April 2023s at minus 0.5bp.

“It’s a very good price,” said a syndicate banker away from the leads. “But even at these spreads, the Canadians will continue to go well as long as they they offer value versus the negative spreads of core Eurozone issuers.”

Analysts at UniCredit today suggested that other Canadian issuers could come to the euro market in the coming weeks, noting that there has been Eu10.75bn of euro benchmark covered bond supply from Canada year-to-date, compared with Eu14.75bn in the whole of last year.

“We think that there are number of good reasons to see more supply as the environment for Canadian issuers is benign taking into account ASW spread levels, yield levels, timing, maturities and newsflow,” said Franz Rudolf, head of financials credit research at UniCredit.

Rudolf noted that the euro-US dollar seven year basis swap has especially improved since the start of October, making euro issuance particularly attractive. He added that the next two weeks appear to be the best window, with Canadian banks set to enter blackout periods in November and with events such as a Fed meeting and the US election at the start of the month having the potential to disrupt the market.