A desire to attract as broad as possible a range of accounts contributed to CIBC’s decision to extend out to eight years and a positive yield for its first euro benchmark since January 2018 on Wednesday, according to Wojtek Niebrzydowski, as the Canadian bank reaffirmed its commitment to the euro market.

Wednesday’s deal was Canadian Imperial Bank of Commerce’s first since January 2018 and overall the bank has issued fewer covered bonds since then than typically. According to Niebrzydowski, vice president, treasury, at CIBC, there are two main reasons for this.

“Firstly – and this isn’t unique to our bank in the context of our Canadian peers – is that we have experienced generally higher deposit growth and somewhat less asset growth, and ultimately that translates into your net wholesale funding requirement,” he told The CBR.

“Secondly, since September of last year we are under the new Canadian bail-in TLAC regime with compliance confirmed as being required in November 2021, so the focus would naturally have been a bit more on the senior side rather than covered side.”

Against this backdrop, CIBC was nevertheless keen to maintain its commitment to the euro market.

“Ultimately, we continue to view the euro market as the core covered bond market, and as such we always profess commitment to this market,” said Niebrzydowski. “We have been saying this for 10 years or so, even during the days when the cross-currency basis was extremely prohibitive.

“Since we haven’t been there since January of last year, the plan was always to come back this year, but for various reasons we only got to it now as opposed to a few months earlier, as most of our peers have done. There is really nothing magic about why it’s July as opposed to April – the intention was there, that was just the convenient time for execution.”

CIBC approached the market this week with swap rates in negative territory out to eight years, and Helaba last week having sold the first negative yielding euro benchmark since the end of CBPP3. Although CIBC was the first non-Eurozone bank to issue a negative yielding euro benchmark covered bond in July 2016, it opted against such a move this time around.

“We were considering something shorter, which obviously would have resulted in a negative yield, and we were led to believe that it was doable,” said Niebrzydowski. “At the same time, the certainty of execution would have been lower, and it would have most likely involved a smaller number of investors. Since we had been out of the market for quite some time, we ultimately concluded that issuing something that still has a positive yield would appeal to a wider investor universe.

“A secondary consideration was that we now have a fair amount of curve extension in our name, which on occasions can be helpful, too.”

CIBC therefore opted for an eight year maturity, the shortest in which it could offer a positive yield.

Leads ABN Amro, BNP Paribas, CIBC, DZ and HSBC built a book of EUR1.8bn good at a re-offer of 9bp over mid-swaps and sized the euro benchmark at EUR1bn (C$1.48bn), having tightened the spread from initial price thoughts of the 13bp area. The pricing was deemed roughly flat to fair value.

“From the standpoint of this deal in isolation, it went very well,” said Niebrzydowski. “How a negative yielding five year would have gone, we can’t know for sure.”

Such a long dated euro benchmark is likely to remain an exception for CIBC.

“Ultimately the profile of our residential mortgage book has not changed materially over the last few years, so our preferred tenor would probably always be around five years, with the odd transaction in threes and, depending on the market, on a very sporadic basis we would in the past have gone a bit longer,” said Niebrzydowski. “But the longer issuance has tended to be limited to the Swiss franc market, where sizes are that much smaller, although our negative yielding euro was a six year.

“Now, if you were to ask me what we will do if for the next two years positive yields can only be achieved in eight, nine, 10 years, well, we’ll deal with that situation when we get to it,” he added. “But the question would probably be similar: do we feel comfortable that an investor would rather hold a triple-A CIBC covered bond at, hypothetically, minus 15bp, or KfW at minus 30bp or Bunds at minus 45bp?”

Seventy accounts were allocated bonds in this week’s trade, of which some 20 were new to CIBC, according to Niebrzydowski.

Banks took 55%, asset managers 25%, central banks and official institutions 14%, insurance companies and pension funds 4%, and others 2%. Germany and Austria were allocated 49%, the Benelux 16%, France 16%, the UK and Ireland 8%, Nordics 8%, Switzerland 2%, and others 1%.