Canada’s RBC and Fédération des caisses Desjardins du Québec overcame volatility in dollar swap spreads to sell three year benchmarks of $1.5bn and $1bn, respectively, this week, with the former benefiting from a redemption and the latter upsizing its first dollar benchmark since 2012.

On Tuesday, RBC leads BMO, HSBC, RBC and UBS went out with guidance of the mid-swaps plus 33bp area for Royal Bank of Canada’s 144A/Reg S dollar benchmark-sized transaction. They set the spread at 31bp over and the size at $1.5bn (C$1.99bn, EUR1.36bn) on the back of $1.75bn of orders, with a syndicate banker at one of the leads saying the re-offer level was flat to fair value.

RBC launched the three year deal ahead of the redemption of a $1.75bn five year covered bond next Monday, a day before the settlement of the new issue, and the lead banker said this had been a key driver of the deal’s success.

“We found that some investors wanted to retain exposure to the credit and asset class by rolling their holding in that instrument into this new deal,” he said.

The 1.9% coupon of the new $1.75bn three year issue compares with a 3.4% coupon on a $1.7bn three year RBC sold in October 2018.

“With rates much lower, the fact we were still able to get a significant order book for this transaction was impressive,” said the lead syndicate banker.

“Similarly impressive was the ability to execute despite a lot of swap spread volatility on the market that day,” he added, “with the wobble in the front end of the dollar market due to a lack of available US dollar cash.”

The Fed on Tuesday intervened in money markets after rates spiked to levels not seen since the financial crisis.

Banks were allocated 59% of the new issue, central banks and official institutions 36%, asset managers 4%, and others 1%. EMEA took 57%, North America 30%, and Asia-Pacific 13%.

Yesterday, fellow Canadian Fédération des caisses Desjardins du Québec (FCDQ, ticker CCDJ) sold its first dollar covered bond since 2012, a $1bn three year issue, after a roadshow that began on 10 September.

“With imitation being the nicest form of flattery,” said the RBC lead banker, “CCDJ came in with their transaction following the successful RBC print, which was a nice indication of the state of the market.”

A syndicate banker at one of FCDQ’s leads said that although the issuer had been absent from the market for some years, the deal was very well received. He said the issuer had originally targeted a $750m size but agreed to upsize it based on strong investor interest.

“We were comfortably oversubscribed even at the larger size of $1bn,” he said, “and we had a very good mix of accounts by type, as well as a good geographical mix.

“It had a nice steady bookbuild through the time zones, and the movement from IPTs to final price was good, too.”

Leads BMO, Goldman Sachs and Morgan Stanley went out with guidance of the mid-swaps plus 36bp area for the three year US dollar benchmark-sized transaction. They ultimately set the spread at 34bp over.

The lead banker said that although on a swap spread basis the pricing was 3bp cheaper than RBC’s, on a Treasury spread basis it was fairly flat.

“Even though RBC printed at 31bp earlier in the week and initially traded well to around 30bp to 29bp, swap spreads had moved and it backed up to trade around 33bp,” he said, “so when we went out, we positioned the deal at a basis point pick-up versus RBC.”

The lead banker said the swap spread volatility had presented some issues ahead of launch.

“You saw some extreme volatility in three year swap spreads, going from, say, minus 2bp to minus 6bp and back again very quickly, so there were a lot of moving parts to consider,” he said. “We had to pause to let RBC and the Fed through before we decided yesterday that we had a good enough market backdrop to execute the deal.”