A Eu1.5bn long five year covered bond for Bank of Montreal today (Thursday) attracted some Eu1.9bn of demand, enabling pricing at the joint-tightest Canadian spread, although the deal offered a marginally higher new issue premium than much recent supply, reflecting its size.

The new issue is the biggest euro-denominated covered bond since 22 May, when Rabobank priced a Eu2.5bn dual-tranche issue that included a Eu1.5bn seven year piece.

BMO’s deal is only the third euro benchmark from Canada this year, and takes year-to-date Canadian supply to Eu4bn. By this time last year, Canadian banks had issued Eu12.5bn of euro covered bonds.

The January 2023 issue was launched this morning with guidance of the flat to mid-swaps area. One hour and 20 minutes later, the leads announced that books had exceeded Eu1.1bn. Another hour later, guidance was revised to the minus 4bp area with books over Eu1.75bn.

The spread was ultimately set at minus 4bp and the size at Eu1.5bn (C$2.21bn), with the final book at around Eu1.9bn.

Barclays, BMO, Commerzbank and HSBC were leads.

“It looks like a strong result in all aspects,” said a syndicate banker away from the leads. “The Canadians always prefer to print in size and they managed that while still getting a good price, even if they stopped at the revised guidance level.”

The deal is the joint-tightest euro benchmark covered bond from Canada, matching the spread of a shorter dated, Eu1.25bn three year issue for Bank of Nova Scotia in October 2014. In April 2015 Toronto-Dominion issued a longer dated, Eu1.25bn seven year at 2bp through mid-swaps.

Bankers said the deal offered around 2bp of new issue premium, citing BMO September 2022s and October 2023s at around minus 6bp, mid. They noted that most recent euro benchmark covered bonds had been priced flat to or even inside fair value.

“In that context, it is perhaps more generous than recent trades – although it is arguable how generous it is to print flat to bid,” said a syndicate banker away from the leads. “They probably felt they should not push it if they had ambitions to print a larger size, and given that they do not have access to the ECB bid.”

Non-domestic Canadian covered bond supply now stands at Eu11.6bn equivalent year-to-date, just under half of the Eu23.5bn issued in the whole of 2016.

“Clearly, the relatively low supply from Canadian banks this year, particularly in euros, would have helped drum up demand for today’s deal,” said a syndicate banker away from the leads. “It’s a strong, non-Eurozone issuer in an intermediate maturity.

“Even at this tight spread, there is much for investors to like.”

The last euro benchmark covered bond from Canada was a Eu1.25bn seven year for Toronto-Dominion on 23 March. BMO’s last deal in the currency was a Eu1.75bn seven year in October 2016. This year BMO has sold two other benchmark covered bonds, a $1.75bn five year in January and a £800m three year FRN in July.