Royal Bank of Canada took orders approaching £550m for a short four year fixed rate sterling covered bond today (Wednesday), finding greater demand than CIBC received for an FRN yesterday. Bank of Montreal is opening dollars with a five year benchmark, having gone out with IPTs of the low/mid-60s area.

Royal Bank of Canada’s deal comes after fellow Canadian issuer CIBC opened the sterling market yesterday, albeit in floating rate format, printing a £300m FRN on the back of £350m of orders. Fixed rate issuance had been favoured prior to CIBC’s deal, with three of the four sizable sterling covered bonds sold post-summer last year being fixed rate.

RBC leads HSBC, Lloyds and RBC launched the December 2021 fixed rate issue with guidance of the 65bp over Treasuries area. The leads announced at 11:30 CET that the books were at £400m, before the spread was fixed at 63bp at 13:20 CET on the back of books approaching £550m (Eu647m, C$907m). The size of the deal had not been set when The CBR went to press.

“Generally it’s gone very well,” said a syndicate official at one of the leads. “The larger size of the order book that today’s deal has generated compared with CIBC is demonstrative of the fact that there’s a bit better demand for the fixed rate format in this part of the curve, particularly for non-UK names.

“This is the only asset class in which investors can buy RBC exposure in the sterling denominated fixed rate format, and that drew a lot of UK asset manager demand, which really drove the success of the transaction.”

Bankers away from the deal agreed that the success of the deal reflected greater depth of demand for the fixed rate format.

“It’s a nice trade and a nice idea,” said a syndicate banker away from the deal.

The deal was seen as offering little to no new issue premium, with the most recent fixed rate sterling issues – BNS September 2021s, NAB November 2021s and Swedbank December 2021s – all trading between 62bp and 64bp, mid.

“For a new December 2021 issue, the premium is arguably 0bp-2bp, but it’s certainly negligible,” said the lead syndicate banker.

He added that sterling spread offered RBC a saving of 5bp-10bp compared with what it would have been able to achieve in alternative covered bond markets.

RBC’s last public sterling covered bond issue was a £400m three year FRN in July 2015.

Bank of Montreal launched the first US dollar-denominated benchmark covered bond of the year this morning, with leads BMO, Barclays, HSBC and TD opening books for the five year issue with initial price thoughts of the low/mid 60s over mid-swaps area.

The deal will be priced this afternoon, New York time, according to syndicate bankers at the leads.

BMO’s last US dollar benchmark was a $1.5bn (Eu1.44bn, C$2.02bn) five year issue in June. The last benchmark in the currency came on 30 November, when National Australia Bank sold a $1bn five year.