CIBC and BMO capitalised on deep demand and competitive pricing in sterling this week, selling a £525m five year fixed rate issue and a £800m three year FRN, respectively, with CIBC’s Wojtek Niebrzydowski highlighting that its deal offered a 4bp-6bp saving versus alternative currencies.

The new issue for Canadian Imperial Bank of Commerce (CIBC) on Monday was the first sterling covered bond from a non-UK issuer since 6 March. Wojtek Niebrzydowski, vice president, treasury at CIBC, said the issuer decided to return to the market after monitoring pricing and indications of potential demand across all the currencies in which it has previously issued.

“The sterling market can be a bit particular, given that for obvious reasons its depth and associated investor demand is much smaller than euros,” he said. “Considering the attractive pricing, limited supply, and understanding that some accounts could be looking for Canadian paper, we decided to come back to the market for the second time this year.”

CIBC had previously issued four sterling covered bonds, all of them floating rate notes, most recently a £325m five year in January. Niebrzydowski said the decision to debut in the fixed rate format was driven by anticipated investor demand.

“As such, for a five year deal we were led to believe the market at this time could be much deeper for a fixed rate than a floater,” he said. “Having a fixed rate benchmark print is also better from the standpoint of establishing a clear reference point on the yield curve.”

Leads CIBC, HSBC, NatWest Markets and Nomura launched the new June 2022 issue with initial price thoughts of the 70bp area over the 4% March 2022 Gilt. Guidance was later set at the 68bp area on the back of books in excess of £450m, including £20m joint lead manager interest. The spread was later fixed at 67bp with books in excess of £500m, including £20m JLM interest, and the size at £525m (Eu593m, C$870m). The final book stood at over £570m, including JLM interest.

“The deal went very well and better than anticipated in terms of size and in line with pricing expectations,” said Niebrzydowski.

He added that the spread offered CIBC a 4bp-6bps saving on a cross-currency equivalent basis versus what the issuer would have been able to achieve with an equivalent US dollar or euro-denominated deal.

The £525m issue was the largest fixed rate sterling covered bond from a non-UK issuer since August 2012, when Commonwealth Bank of Australia printed a £750m 14 year.

“While the market convention minimum benchmark size is £250m and that’s what we would have expected to issue on the low side, being active in euro or US dollar markets – where generally the accepted benchmark size is one billion – we were comfortable upsizing the deal to £525m on the understanding that the order book composition would fully support this amount.”

Fund managers were allocated 44% of the deal, banks and private banks 40%, insurance companies and pension funds 7%, central banks and official institutions 4%, and others 5%. Accounts in the UK and Ireland took 50%, Germany and Austria 19%, North America 10%, Switzerland 6%, France 5%, Italy 4%, Asia 4%, and others 2%.

On Tuesday, Bank of Montreal (BMO) followed with a £800m three year FRN that is the largest sterling covered bond from a non-UK issuer since September 2014. The book of some £1.1bn is also understood to be one of the biggest ever built for a non-domestic sterling covered bond.

Leads BMO, Credit Suisse, HSBC and Lloyds Bank launched the deal with initial price thoughts of the three month Libor plus 25bp area. Guidance was later set at the 22bp area on the back of books in excess of £1bn, for an expected minimum size of £500m. The spread was ultimately fixed at 21bp, with books around £1.1bn, before the size was set at £800m.

“We are pleased with the result, given the size and pricing we were able to achieve,” said a BMO spokesperson. “This transaction provides cost-effective and diversified funding for the bank.”

The deal is the tightest-priced public sterling covered bond in floating rate format from any country since April 2015, when Nationwide Building Society priced a £750m three year at three month Libor plus 20bp.

At the final spread of 21bp, the deal landed inside recent trades from domestic issuers Santander UK, Royal Bank of Scotland and Barclays, which between late April and mid-May priced three year FRNs at 27bp, 26bp, and 23bp, respectively.

“That’s a very impressive outcome, that testifies to the advantages in the sterling market right now,” said a banker away from the deal. “It exceeded expectations.”

Bankers said further sterling issuance could emerge next week, given the accommodating conditions, with some suggesting that domestic issuers may seek to capitalise on the pent-up demand.

However, UK banks will enter blackout periods in the coming weeks, with regular covered bond issuers including Lloyds, Barclays and Santander UK reporting results on 27-28 July.

Bayerische Landesbank held a series of senior unsecured and covered bond fixed income investor meetings in the UK on 13-14 June, but has not yet come to the market with a sterling-denominated deal.

“The list of issuers that can do something in the coming weeks is limited,” said a banker. “But the market is there for the taking for those that can.”