A EUR1.25bn five year covered bond for Bank of Montreal was deemed the highlight of three euro benchmarks today (Thursday), as demand peaking above EUR1.9bn allowed the issuer to achieve a NIP of as low as 4bp, and the deal was deemed a potential trigger for more non-Eurozone supply.

The new issue came as ABN Amro and LBBW also entered what remains a difficult market after a Commerzbank reopener yesterday (Wednesday) (see separate article). Bank of Montreal’s issue was the first non-Eurozone trade of the year.

Leads BMO, BNP Paribas, Crédit Agricole, Deutsche Bank and HSBC went out with initial price thoughts of the 22bp over mid-swaps area and after a little over an hour said that books were above EUR1bn. Three-quarters of an hour later, with books above EUR1.9bn, the spread was fixed at 18bp over, and the new issue was ultimately sized at EUR1.25bn (C$1.94bn, US$1.43bn) on the back of more than EUR1.75bn of orders.

A syndicate banker away from the leads said BMO’s issue “certainly gets the prize for the most convincing trade”, and a banker at one of the leads said it went extremely well, noting that it had the biggest book and was tightened the furthest – also with relatively few investors dropping out at the re-offer level.

He put fair value at 14bp over, with the leads having circulated comparables including BMO January 2023s at 12.5bp, mid, and October 2023s at 13bp mid, with other Canadian names at similar or slightly wider levels. The 4bp new issue premium is lower than the 6bp-9bp premiums paid by this week’s other three issuers.

“Here, 20bp plus at the starting point for a five year triple-A covered bond did the trick,” said the lead banker.

He noted that the leads had been comfortable moving directly from 22bp to 18bp given the high level of oversubscription for the EUR1.25bn size, and the lack of drops showed that the “relatively aggressive stance” could be afforded, with investors showing “substantial demand for the name”.

The euro benchmark is BMO’s first since a EUR1.5bn long five year in October 2017, and bankers said investors will have been attracted by the signature’s scarcity value.

A banker away from the leads said the deal sends a “pretty strong signal” of the euro covered bond market’s appeal to non-Eurozone issuers. He said that the pricing was equivalent to around dollar Libor plus 40bp, well inside where dollar benchmark covered bonds trade in the secondary market, where they can be as wide as 50bp over.