DNB Boligkreditt demonstrated the enhanced merits of US dollar covered bonds versus senior with a $1bn five year covered bond yesterday (Thursday), which offered a saving of some 35bp versus senior while being priced with a negligible NIP, upon $1.6bn final demand.

The deal is the third US dollar benchmark covered bond of the year and came one day after Canadian Imperial Bank of Commerce (CIBC) issued the second, a $1.75bn three year 144A deal. The only other was a $650m Reg S issue for NordLB Luxembourg in February.

“It’s very pleasing to see some resurgence in US dollar activity at last,” said a syndicate banker.

DNB Boligkreditt leads Barclays, HSBC, RBC and TD launched the five year 144A deal with initial guidance of the 40bp-42bp over mid-swaps area. The spread was later fixed at 38bp and the size at $1bn (EUR864m, NOK8.15bn). The book peaked at around $1.9bn and the final book good at re-offer stood at around $1.6bn.

The deal is the biggest US dollar covered bond from a European issuer since March 2017, when Stadshypotek issued a $1.25bn five year, although DNB Boligkreditt tends to print larger deals in the US dollar market, which each of its last three being over $1bn in size.

Syndicate bankers at the leads said the deal looked especially attractive if compared to what DNB Boligkreditt would have been able to achieve with an equivalent US dollar senior unsecured issuance. They estimated that the final spread was around 35bp inside where a new US dollar senior issue would have been priced, and said this was at the higher end of the range seen between US dollar covereds and senior in recent years, of 15bp-40bp.

A syndicate banker that worked on both DNB’s and CIBC’s deals said this saving could, after the long wait for new issuance, spur increased activity in the US dollar market.

“There is now a meaningful differential versus senior unsecured spreads for issuers who monitor the market in that fashion,” he said. “I think that will be the driver, more so than people looking at levels versus euro or sterling covereds or Aussie dollars.

“There was a little bit of uncertainty going into both transactions about how they might look in terms of size and spread, but now these deals should give some confidence about what execution looks like in this market.”

The deal paid a negligible new issue premium, said bankers, with DNB 2022s seen trading in the low 30s.

Bankers said DNB Boligkreditt had paid up to print the US dollar deal relative to the funding level it could have been able to access in alternative currencies such as euros.

“But I think issuers realise the merits of keeping the US dollar market open as an alternative source of funding for them, and appreciate that investor diversification,” said the syndicate banker.

Accounts in North America were allocated 50% of the deal, EMEA 40%, and Asia-Pacific 10%. Banks were allocated 77%, central banks and official institutions 8%, insurance companies and pension funds 8%, and fund managers 7%.

Toronto-Dominion Bank was meanwhile active in its domestic market yesterday, printing a dual tranche C$1.25bn (EUR811m, $939m) deal, comprising a tap of a fixed rate covered bond and a new FRN.

The Canadian bank tapped by C$500m a June 2021 at a spread of 55.2bp over government bonds, taking the deal size to C$3bn. It also issued a $750m five year FRN at a spread of three month CDOR plus 31bp.