Bank of Nova Scotia followed the market’s new terms to print a EUR1.25bn four-and-a-half year covered bond upon a EUR1.7bn book today (Wednesday), offering a 4bp-5bp premium at a wider spread than it paid for a seven year issue in January, to be rewarded with a late influx of orders.

The September 2022 issue was launched this morning by leads BNP Paribas, Deutsche Bank, HSBC, LBBW and Scotiabank with guidance of the mid-swaps flat area. After around one and a half hours, the leads announced that books had surpassed EUR1bn.

The spread was subsequently set at minus 2bp with books over EUR1.4bn, before the size was fixed at EUR1.25bn (C$2.01bn, $1.54bn) with the final book at EUR1.7bn.

“BNS took a very wise approach after seeing the market’s reaction to recent trades, with tighter deals undersubscribed and some others not getting very enthusiastic demand,” said a syndicate banker at one of the Canadian bank’s leads. “BNS adjusted and followed the new pricing process, paying what was needed to attract investors.”

Syndicate bankers noted that the flat area starting point was the same starting point BNS used for a seven year benchmark in January, ultimately pricing that longer, EUR1bn deal tighter, at minus 4bp.

“But the market has changed since then,” said one.

The lead syndicate banker said BNS could have tightened the spread of the new issue further but opted against it, and noted that when the spread was fixed at minus 2bp, there was a further influx of orders.

“That is because this is a defensive tenor and investors see the value there,” he said. “Many investors had been waiting, after being disappointed in other trades, either by the final spread or the book.

“Unlike other transactions that have lost EUR200m-EUR300m at the final spread, we gained EUR300m.”

Syndicate bankers away from the leads agreed BNS had taken a sensible approach, especially given its ambition to print a larger size.

“This was the right kind of deal for the market,” said one. “It should give some confidence.”

Bankers said the deal offered a new issue premium of around 4bp-5bp based on the secondary levels of recent Canadian benchmark’s, seeing BNS January 2025s – the issuer’s most recent euro benchmark, having been priced at minus 4bp on 12 January – at minus 3.5bp and Toronto-Dominion January 2023s – the most recent Canadian benchmark at the shorter end of the curve, having been priced on 5 March – at around minus 6bp.

The deal also offered an even more attractive premium versus older outstandings in BNS’s curve, bankers said, seeing its January 2022s at minus 7bp and March 2023s at minus 8.5bp

“Now, 4bp-5bp premium is what is required in the covered bond market, compared to the 1bp-3bp that was expected in January, February and even the beginning of March,” said a syndicate banker.