Sumitomo Mitsui Banking Corporation sold the first Japanese covered bond in US dollars today (Tuesday), a $1bn five year Reg S deal that whose size and pricing were both acclaimed, while the issuer also priced a EUR500m seven year follow-up to its debut in euros in October 2018.

The Japanese issuer held a roadshow after having on 28 May announced plans for Reg S intermediate to long euro and/or short to intermediate maturity US dollar benchmarks. Both potential trades were then launched today, with the euro being a five year and the dollar a seven year.

The dollar tranche was sized at $1bn (EUR884m, ¥109bn), larger than typical Reg S dollar trades, on the back of demand above $1bn at the re-offer of 50bp over mid-swaps.

“This was a great trade, the dollar piece in particular,” said a syndicate banker at one of the leads. “To get to $1bn at this level for its inaugural trade is a testament to the value investors see in SMBC’s structure and the quality of the underlying collateral.”

The dollar deal was priced at 50bp over mid-swaps following guidance of the 50bp area, with the syndicate banker noting that a few large orders were limited at 50bp, and the emphasis being on size rather than price.

A banker away from the leads nevertheless said that the spread was a decent outcome, suggesting that a five year Canadian five year dollar benchmark would come in the low 40s.

“This implies they have not been charged too much for the funkiness of the structure, which isn’t for everyone,” he said.

The lead banker put the dollar pricing at equivalent to around 20bp over in euros, saying this made for a healthy curve, with SMBC’s EUR1bn November 2023s quoted at 15bp-16bp and the new seven year euro being priced at 25bp over.

Pricing on the euro benchmark was tightened from the 30bp area on the back of demand that peaked above EUR900m, of which some EUR800m was good at re-offer.

The lead banker said that both tranches were very well placed, but that the dollar in particular was with “very sticky” accounts, predominantly government institutions and asset managers.

He suggested SMBC’s inaugural dollar transaction would incentivise other Japanese banks to enter the covered bond market.

“The other Japanese issuers value dollar funding more,” he said, “so to be able to show to the market that even in Reg S format they can execute a billion is a great takeaway.”