Bank of Nova Scotia tapped a €750m March 2023 issue for €1.25bn today (Thursday) at what some syndicate bankers deemed an astoundingly wide level with the potential to cause headaches for future issuers, although its €1.7bn book was cited as evidence of a realistically-priced trade.

After announcing the mandate this (Thursday) morning, Bank of Nova Scotia leads BNS, BNP Paribas, Credit Suisse, NatWest and SG reopened the €750m March 2023 issue this morning (Thursday) with guidance of the mid-swaps plus 60bp area. After first reporting books over €750m, they subsequently set the spread at 55bp on the back of orders above €1.5bn, and then sized it at €1.25bn, with the final book over €1.7bn.

The last Canadian euro benchmark was a €750m September 2023 trade for Canadian Imperial Bank of Commerce (CIBC) on 20 March. Although its final order book of €810m was lower than preceding Canadians had enjoyed, the leads noted that it was the first Canadian covered bond in a series not to have been priced wider than its predecessors. BNS’s re-offer today was 7bp wider than CIBC’s, and 35bp wider than where it issued a €1.25bn five year on 11 March.

A syndicate banker away from the leads said he was “staggered” to see the headline spread at 60bp, given where the outstanding had been quoted, and considering how the market had improved over the past two weeks, as evinced by stronger order books – most recently Compagnie de Financement Foncier (CFF) attracting €2.2bn of orders to a €1bn four year on Monday – and the performance of French paper.

“CFF, for example, was at 32bp as of yesterday, while it came at 35bp,” he said, “so when I saw the BNS guidance, I was pretty taken aback, to be perfectly honest.

“We had the March 2023 at 36bp. I know if somebody asked a trader where they could buy €10m of that bond, it’s not going to be 36bp, but nevertheless I find the rationale for this trade quite problematic to understand.”

Another banker away from the leads said the pricing was “dramatically wide” from the outset and “out of bounds” from a European issuer perspective, but that BNS might have its reasons.

“I’m not privy to all those details,” he said, “and it’s a transaction that probably needs both a bit of explaining and understanding. However, 55bp for a short three year does stick in people’s memories, and I’m not sure to what extent it’s helpful.

“In the end they did it, and they did OK.”

Recent Canadian three and four year paper had not performed particularly well, according to the syndicate banker, but he said it had not widened to the extent that BNS’s starting point was necessary.

“It’s an outlier,” he added. “A tap in itself is nothing to be too concerned about, but it’s at a price that may cause a headache to one or another market participant in the future.”

A lead syndicate banker said the pricing level was appropriate when considering where Canadian paper was trading, such as a Bank of Montreal €1.25bn three year in the mid to high 40s and a Toronto-Dominion €1bn four year at around 50bp, both priced on 19 March.

“You’ve got to compare apples to apples,” he said, “which in this case, is Canadian secondaries, and they were all trading in the high 40s to low 50s area, so you’re talking about a high single-digit new issue premium on this one.”

He added that this is the third time BNS has tapped the euro market this year, following a €1.5bn seven year print in January and the €1.25bn three year last month.

“It’s quite a lot,” he said, “and in the meantime they’ve done just shy of a billion in dollars, a bunch in Swissies, and the next best thing is Aussie dollars, which is still 15bp back of where they’ve just done this deal.

“It’d be a fair comment to say the deal was mispriced if we had a €6bn-plus book, which we did not,” he added, “so if anything, I think we got the price spot on.”