Bank of Nova Scotia priced a “solid” EUR1bn seven year covered bond today (Friday) at the joint-tightest Candian spread. BayernLB is set to launch a EUR500m 10 year on Monday, and the long end is still deemed an attractive, viable option in what is expected to be a busy week, despite rising yields.

Following a mandate announcement yesterday (Thursday) afternoon, Bank of Nova Scotia leads BNP Paribas, Credit Suisse, LBBW, Scotiabank and UBS launched the seven year issue this morning with guidance of the mid-swaps flat area.

After one hour and 10 minutes, the leads announced that the books had exceeded EUR1bn. The leads subsequently revised guidance to the minus 3bp area, plus or minus 1bp will price within range, and set the deal size at EUR1bn, on the back of more than EUR1.4bn of orders, excluding joint lead manager interest. The spread was later fixed at minus 4bp.

“It’s another solid result,” said a syndicate banker away from the leads. “It follows the template of many of the deals we’ve seen this week – decent, but not huge, oversubscription, and a 4bp tightening of the spread, albeit in this case without the support of CBPP3.”

The spread is the joint-tightest for a Canadian euro benchmark covered bond, matching the spread of the last such deal in 2017, a EUR1.5bn long five year for Bank of Montreal in October.

The deal paid a new issue premium of around 3bp, according to bankers at and away from the leads, who saw Bank of Nova Scotia January 2022s and March 2023s – its longest dated outstanding – trading at minus 9bp, mid.

The deal is the first euro benchmark covered bond from Canada this year, but Bank of Nova Scotia’s second in all currencies, following a £550m five year FRN on Thursday of last week.

Syndicate bankers expect the pace of euro covered bond supply to remain high next week, with many issuers said to be monitoring the market – core issuers in particular.

“There are lot of European names standing on the sidelines waiting for their window,” said one. “I expect a pretty busy one next week.”

BayernLB announced a mandate this morning for a EUR500m no-grow 10 year public sector Pfandbrief via BayernLB, Crédit Agricole, NordLB, Swedbank and UniCredit. Syndicate bankers at the leads said the deal will be launched on Monday, subject to market conditions.

Bankers estimated that fair value for the new issue will be around minus 19bp-18bp, seeing BayernLB September 2025s at minus 22bp, mid, and January 2026s at minus 21bp.

The deal is set to be the sixth 10 year euro benchmark covered bond since the start of the year, with longer maturities having proven popular despite some early worries about the depth of demand.

Some market participants again expressed doubts about the sustainability of long end demand today on the back of rising yields.

Minutes from the ECB governing council’s December meeting, released yesterday, record that members argued the ECB’s communication stance “needed to evolve gradually in step with improving economic data”. This news came earlier than investors had expected, resulting in a rise in Eurozone bond yields. Further spurred on by reports of a breakthrough in negotiations to form a coalition government in Germany, the 10 year Bund hit its highest level since August today, at 0.54%.

Syndicate bankers acknowledged that if yields continue to rise, investors may become less willing to buy at the long end and could solidify their preference for more defensive maturities – with the intermediate part of the curve deemed to be the market’s current sweet spot.

“The intermediate part of the curve is probably where investors are happiest, even though most supply has been at the longer end so far,” said a syndicate banker. “It’s simply a case of issuers taking the opportunity to fill long end needs, at very attractive levels, while they can, and while the right kind of investors – like insurance companies – have money to spend.”

However, most bankers expect the long end to remain open in the coming weeks, unless yields become significantly more volatile.

“Of course, in times of volatility and rising yields, investors usually don’t opt for longer dated material,” said one. “But as yields have been rising steadily for some time and this is a slow and continuing process, I think investors are getting used to that.”

Another syndicate banker agreed, noting that demand for today’s Bank of Nova Scotia trade and a EUR1bn 10 year for NordLB yesterday had not been negatively affected by yield moves.

“You can never be sure, but I would be very surprised if we have any buyers’ strike at the long end,” he said.