HSBC Bank Canada yesterday (Thursday) attracted $2.25bn of demand to a $1bn three year covered bond after a three day execution process, with bankers noting the issuer had reopened the market some 28bp tighter and received more orders than the last US dollar benchmarks, in March.

The mandate was announced on Tuesday and an update provided on Wednesday afternoon, teeing up launch for yesterday. At 8.00 London yesterday morning, leads CIBC, Danske, HSBC, LBBW, Natixis, Rabobank, RBC and Santander went out with initial price thoughts of the mid-swaps plus 80bp area for the three year US dollar benchmark-sized 144A/Reg S transaction. After around an hour and 25 minutes, books were reported as being over $1.25bn, and after around four hours and 45 minutes, the IPTs were revised to 75bp area on the back of $1.7bn of demand. The spread was ultimately set at 72bp and the deal size at $1bn (€925m, C$1.41bn), on the back of $2.25bn of demand.

The pricing compares with 100bp levels for the last two dollar benchmarks, $900m and $1.25bn trades also in the three year maturity from compatriots Bank of Nova Scotia and Toronto-Dominion Bank on 25 and 27 March, respectively.

Syndicate bankers at and away from the leads said secondary dollar covered bond spreads have been more dislocated than in euros, where pricing levels have also varied but to a much lesser extent, citing the lower liquidity in the asset class in dollars. They said it was therefore especially helpful to see where primary price points would settle.

“We’ve seen a significant rally in spreads in US dollars,” said a banker away from the leads, “as the deals that were coming at 100bp were trading in the context of the 60s, so I don’t think investors have a huge amount of conviction in the secondary levels.”

Given European covered bond spreads have tightened around 15bp in the interim, the pricing of 72bp was reasonable, he added, reflecting an elevated concession of around 12bp versus secondaries.

“The volatility you see in dollars is maybe a one-and-a-half times multiple of what you see in euros,” he said. “When you see a sell-off in that market, it’s exaggerated, and then performance is exaggerated, too.”

A lead syndicate banker noted that the issuer had a degree of pricing power, unlike BNS and TD, who priced in the middle of guidance.

“HSBC probably had the luck to wait instead of coming with the other, let’s say, motivated issuers who had a window in which they wanted to get some funding in and pay the price”, he added.

“At this point in time after the panic,” he added, “this is one of the rare opportunities to buy a triple-A covered bond in a shorter maturity with a very nice spread, and this obviously appealed to a lot of investors.”

The banker away from the leads said the execution process was unusual considering the issuer has come to the market previously.

“It was quite unique in that respect,” he said, “but I suppose they haven’t issued much, and I’m sure there are investors who will take a little bit longer to set up lines – this is not an environment where you can do a physical roadshow, of course.”

Another lead banker said the issuer elected for a three day process given it was only its third covered bond and it wanted investors to re-familiarise themselves with the credit and put lines in place if necessary, and that the strategy had clearly paid off.

“It’s a very solid outcome,” he said, “particularly in the context of how the market has developed since BNS and TD came at wider levels – and neither of them got a book this big.

“They didn’t do the intra-day drive by, and although it might look a little different, this is a relatively new issuer – every other Canadian issuer has done a load of dollars, sterling and euros – so they were patient and methodical and did the right thing by everyone.”

He said that although some Canadian issuers are entering blackout periods, other jurisdictions could be eyeing the dollar market on the back of the new issue, given that levels are improving and investors have cash to put to work.

However, the other lead banker said it is unlikely any similarly shorter dated offerings will come from a European issuer in the foreseeable future, given the more attractive TLTRO III funding options available.

The spread of 72bp over mid-swaps in dollars was seen as equivalent to around 41bp over in euros.