NBC showed there is still life in the pre-summer market with a EUR750m five year covered bond today (Tuesday) that offered a sizeable saving versus US dollars. Canada’s impending bail-in regime could meanwhile make covered bonds more attractive for issuers.

National Bank of Canada (NBC) leads Commerzbank, LBBW, Lloyds, NBC and UBS launched the five year issue with guidance of the mid-swaps plus 7bp area this morning. The spread was later set at 3bp and the size at EUR750m with books over EUR1.1bn.

“Getting all the way to plus 3bp is a good outcome,” said a syndicate banker away from the leads. “When you think that about a month ago RBC started at 6bp and landed at 2bp for a EUR1.5bn issue and NBC have today started at 7bp and landed at 3bp for half the size, that feels about right and is demonstrative of the relative stability of the market over that period.”

Syndicate bankers said the final spread offered a new issue premium of around 1bp, based on NBC’s secondary curve and recent five year deals from other Canadian issuers.

On 23 May, Desjardins priced a EUR750m five year at 3bp over mid-swaps, while on 21 June, RBC priced a EUR1.5bn five year at 2bp. Both the 2023 deals were seen quoted today at around re-offer, on the mid.

The final spread was deemed to have offered NBC a saving of around 15bp versus what it would have been able to achieve with an equivalent US dollar transaction.

Bankers said euro funding is currently very attractive to North American issuers – many of whom have just reported results – as a result of recent basis swap moves. They said further euro supply could consequently be brought to the market in either covered bond or senior format. NBC’s deal comes after euro-denominated senior unsecured deals for compatriots Bank of Montreal and Toronto-Dominion last week.

“Much of this activity has been motivated by the euro swap into US dollar being pretty favourable at the moment, following a pretty aggressive basis move in the last week or two,” said a syndicate banker.

The two senior preferred deals from BMO and TD will likely be the issuers’ last in the existing format, as on 23 September the new Canadian bail-in regime will take effect and all new senior bonds issued will be bail-in-able.

A syndicate banker at a Canadian bank said it is expected Canadian banks will not have to issue any additional debt in the near term as a result of the regulation but rather replace existing old-style senior bonds – which will be exempt from bail-in – with new-style bonds as they mature, meaning that a substantial impact on levels of covered bond or senior issuance is unlikely.

However, he suggested that the bigger Canadian banks could prioritise issuing new-style senior bonds after the regulation takes effect in September in order to be the first to set pricing benchmarks, thereby potentially pushing covered bond projects earlier or later in the year.

“But covered bonds will continue to be an important part of the funding mix,” said the syndicate banker, “and the fact issuers will probably be paying slightly more for the senior notes they issue going forward could make covered bonds an even more important part of that funding mix.”

NBC’s deal is the first euro benchmark covered bond since last Tuesday. Some bankers had begun to speculate whether the market had already seen its last deal before the summer break, before the deal appeared on screens. However, bankers said supply will remain limited, if any more appears at all, noting that many European banks are now in their reporting periods.