A €750m three and a half year deal from CIBC today (Friday) generated a smaller order book than four previous Canadian euro benchmarks this week and last, but lead bankers noted it marked an end to the progressively wider spreads that the issuer’s compatriots had paid.

After announcing the mandate this morning, Canadian Imperial Bank of Commerce leads CIBC, DZ, HSBC, Natixis and UBS went out with guidance of mid-swaps plus 48bp, the number, for a three and a half year euro benchmark-sized transaction. After around an hour and 35 minutes, books were reported as being over €500m, excluding joint lead manager interest, and after around three hours and 40 minutes, books were reported as being over €830m, excluding JLM interest. The deal was ultimately sized at €750m (C$1.18bn), on the back of over €820m of demand, pre-reconciliation.

CIBC’s trade is the latest in a flurry of short-to-medium dated Canadian supply totalling €5.25bn that has all but monopolised euro benchmark issuance into the prevailing volatile markets, with a €500m four and a half year deal for Axa Bank Europe SCF the only other issuance in the past fortnight. As well as a Bank of Nova Scotia €1.25bn five year on Wednesday of last week (11 March) that opened the Canadian issuance, deals for Royal Bank of Canada on Tuesday and Bank of Montreal and Toronto-Dominion yesterday (Thursday) all attracted order books between €1.2bn and €1.5bn.

A syndicate banker away from the leads noted that CIBC’s book of some €820m was the smallest of the five Canadian deals.

“They came last in the line,” he said, “indicating that liquidity is drying up a bit, even for the Canadians, so they are probably done now.”

A syndicate banker at one of the leads said CIBC had not been aiming for a large deal, given it had been active in the market twice previously this week, launching taps of both sterling and Swiss franc deals.

“We weren’t looking for a huge size,” he said, “and we gave the market direction and clarity throughout the process – all in all, a decent Friday drive-by.”

Another lead banker said the reduced book was not surprising given CIBC was the fifth Canadian euro benchmark within two weeks, and that the issuer sometimes prints smaller issues.

“It was a very decent trade,” he added. “Doing €750m out of an €820m book was no problem, as Canadians are used to doing these filled very high, size-to-demand prints.”

The lead bankers said the pricing was appropriate being, in the words of one, “flat bang” in between BMO’s €1.25bn three year and TD’s €1bn four year, which were priced at 45bp and 50bp, respectively.

“The idea was to pick the intermediate maturity and the intermediate spread,” said the first lead banker, “and as 47.5bp was probably not the greatest of guidance, we agreed to round this to 48bp.”

The other lead banker noted CIBC’s trade was the first of the Canadian issues not to reprice the market.

“Every other deal priced back of the previous one,” he noted.

BNS’s €1.25bn five year was priced at 20bp and RBC’s €1bn five year at 40bp.

A syndicate banker away from the leads said CIBC’s pricing was reasonable, considering RBC had not performed well in the secondary market, despite offering a considerable new issue premium.

“RBC was at around 42bp to 43bp,” he said, “so everyone else had to come wide of where they were, plus a bit extra for the fact that RBC is the best name out there, together with TD.”

While Canadian issuers’ rush of euro covered bond benchmark at significantly elevated spreads has raised eyebrows in some quarters, a Canadian banking industry source said that it was merely prudent term funding management, noting that spreads on bail-in-able senior paper for all major jurisdictions are at prohibitively high spreads.

“If you don’t want to get stuck with 250bp-300bp credit spreads on TLAC but would like some term money, this is the obvious place to do it,” he said. “It’s the market that’s always considered to be the most resilient and certain things are getting done, even if it’s not easy.

“Obviously the Canadians can’t access the ECB support the Europeans can. For the first time ever we can use self-issued Canadian dollar-denominated covered bonds for up to one year repo with the Bank of Canada, but that’s slightly different to a multi-billion euro purchase programme that effectively buys 40% of anything that comes to market.”

He said a $1.3bn 21 non-call 20 bond from Citibank yesterday at 350bp over reflected a similar stance to the Canadians’.

“Why 20 year money? Because, I’m led to believe, that’s where the best availability is. Do they need the money? Somehow I don’t think Citibank needs $1.3bn of 20 year money, but if funds are available, one may want to take it.

“It never does you any harm to be able to say you have market access, regardless of whether you need funds or not – it doesn’t mean in any shape or form that the banks really need the money.”

A syndicate banker said few other jurisdictions are similarly disposed towards issuance, even if many issuers are eyeing up the market.

“I would be greatly surprised if any Pfandbrief issuers came,” he said, “and frankly, 98% of potential candidates are put off by the prices they are seeing.”

“The world is in disarray,” he added, “and it will take some time before things gets back to normal.”

Another syndicate banker said there is a decent covered bond pipeline, although whether this materialises will depend if issuers can be convinced to pay the new issue premiums necessary, and if markets remain sufficiently stable.

“We need to see what the weekend brings,” he said. “Hopefully the coronavirus curves flatten more across Europe.

“Asia seems to be getting a lot better – that’s a big relief – so I imagine all eyes are now on the US.”