Fédération des caisses Desjardins du Québec (CCDJ) today (Tuesday) followed up on the recent success of a NBC €500m seven year benchmark with a €500m five year that attracted a peak €2bn-plus of orders and achieved pricing 1bp inside fair value and the tightest Canadian spread since July 2018.

Leads BNP Paribas, Commerzbank, Natixis, NatWest and TD opened books at around 8am London time this morning with initial guidance of the 8bp over mid-swaps area for the €500m (C$742m, US$589m) no-grow five year deal. After around an hour and a half, they reported books in excess of €1.5bn, and around an hour later revised guidance to 4bp+/-1bp, will price in range, with books approaching €2.1bn. The pricing was then fixed at 3bp on the back of around €1.75bn of orders, and some €1.5bn of demand was good at re-offer.

The euro benchmark is only the third of the year from Canada, after a Royal Bank of Canada €1.25bm 10 year on 19 January and a National Bank of Canada (NBC) €500m no-grow seven year on 18 March, which attracted a peak €1.9bn-plus book and final demand of some €1.7bn at 5bp over.

Syndicate bankers away from the leads said CCDJ’s new issue appeared to have gone well, citing the level of oversubscription and pricing around 1bp inside fair value.

“It’s a follow-up to NBC, but in a shorter maturity,” said one. “Starting at 8bp seemed very sensible to me given fair value of 4bp, then they had similar momentum to NBC in the order book to get to 3bp, which is a decent outcome.”

Another syndicate banker said the €500m no-grow size will have helped dynamics, and noted that the large order book was achieved without the aid of the Eurosystem.

The last Canadian euro benchmark to achieve pricing as tight as 3bp was an NBC €750m five year in July 2018.

A lead banker cited several factors in CCDJ’s success. As well as the overall lack of supply in the covered bond market – the last euro benchmark supply was NBC’s alongside a €750m OP Mortgage Bank green debut – he noted that Canadian supply this year has been limited to €1.75bn, while 2021 redemptions will be €7.5bn.

Meanwhile, Canadian paper offers a pick-up over core European, CBPP3-eligible names, he added.

“There is appetite from investors for those extra basis points they are able to capture.”

CCDJ also tapped a shorter maturity than the previous 10 and seven year Canadian trades, he noted, saying the five year maturity tapped into the biggest bucket of demand.

The transaction is the issuer’s fourth euro benchmark since the start of 2019, and the lead banker said the increased regularity of its issuance – after an absence from euros from late 2015 to early 2018 – meant that more investors have lines in place for the credit, which nevertheless remains relatively scarce.

The size and quality of the order book gave the issuer and leads the necessary confidence to ultimately move 5bp from initial guidance to the 3bp level, according to the lead banker.

“It was natural we would have some drops,” he added.

He estimated the pricing of 3bp over mid-swaps was equivalent 21bp over in US dollars.

Syndicate bankers said that although the stable and accommodative market means a window remains open tomorrow (Wednesday) for any issuers keen to jump in ahead of the forthcoming Easter weekend, supply is likely to remain limited over this week and next.