Deutsche Pfandbriefbank and Fédération des caisses Desjardins du Québec took US dollar supply to $5bn for the week with $750m three and five year deals, respectively, today (Thursday) and yesterday, attracting strong demand in the Reg S and 144A markets.

Following a mandate announcement yesterday (Wednesday), Deutsche Pfandbriefbank (pbb) leads Citi, Credit Suisse, HSBC and Nomura this morning European time went out with initial guidance of the mid-swaps plus 22bp area for the October 2024 Reg S dollar benchmark mortgage Pfandbrief, expected rating Aa1. After close to three and a half hours, the spread was set at 20bp on the back of books above $600m, excluding joint lead manager interest, and the deal was sized at $750m (€649m) on the back of books in excess of $900m, excluding JLM interest, with orders ultimately exceeding $1.1bn.

The new issue comes ahead of a $600m redemption of a previous three year that pbb issued in November 2018 and a syndicate banker at one of the leads said the German had chosen to hit the market in advance of the maturity to take advantage of attractive conditions.

“The market looks pretty good, dollar deals are working very well, and crucially for them the basis swap actually made quite a bit of sense,” he said.

The funding level was equivalent to the mid-single-digits back of pbb’s euro curve, which was “palatable” to the issuer, according to the lead banker, while the issuer’s January 2021 dollar paper was quoted at 17bp, mid, implying fair value in the high teens.

“So a pretty minimal concession for the size,” he added.

The dollar benchmark is pbb’s second of the year, following a $750m three year in January, while the issuer has also tapped sterling twice in the past year.

“They have been pretty active in trying to expand their international presence,” said the lead banker, “and have succeeded in getting decent sponsorship as a result.”

Fédération des caisses Desjardins du Québec (CCDJ) leads Barclays, Crédit Agricole, DZ, Goldman Sachs, RBC and UBS opened books yesterday morning European time with initial price thoughts of the mid-swaps plus 19bp area for the October 2026 144A/Reg S dollar benchmark, expected ratings triple-A. With books at around $1.4bn, the spread was set at 17bp, and a $750m (C$946m) deal was ultimately priced on the back of some $1.2bn of orders good at re-offer.

CCDJ hit the market two days after Scotiabank’s record-breaking $3.5bn five year, which was also priced at 17bp, but a syndicate banker at one of CCDJ’s leads said the issuer had already been eyeing the market for some time before its compatriot’s deal.

“So it was not because of Scotia,” he added, “it just happened that Monday did not fit internally.”

However, he acknowledged that Scotia’s achievement had “shocked most of the marketplace”.

A larger size would have been possible for CCDJ, according to the lead banker, and also a tighter price.

“But the issuer wanted $750m,” he said, “and was pleased with 17bp.”

CCDJ’s and Scotiabank’s deals come four weeks after Royal Bank of Canada on 7 September priced a $2.5bn five year that was the biggest dollar benchmark covered bond in five years, but the lead banker said the dollar market had been further boosted by a back-up in rates since then.

“The real reason why this has caught a lot of steam is we’ve had five year Treasuries get to the 1% level, with swap spreads fairly stable,” he said. “That part of the curve has been the area of most interest for all corporate and rates investors.”

While RBC’s coupon was 1.05%, Scotiabank’s was 1.18% and CCDJ’s 1.20%.

However, he suggested a pause is now likely, with non-farm payrolls out on Friday, a public holiday on Monday, and bank earnings season starting on Wednesday.

“But if we have rates rise again steadily, and the cross-currency swap becomes more favourable to swap back to Canadian dollars, the capacity is certainly there,” he added. “You have to remember that we are looking at close to just under $9bn in US dollar covered bond issuance this year, and many investors had thought that we would be in the low to mid-teens from an issuance standpoint.

“It’s all about timing.”