Royal Bank of Canada tapped into an unseasonably buoyant euro covered bond market today (Monday), upping a five year transaction to €1.5bn in the wake of a €2.5bn dual-trancher from SG yesterday, as conditions remained constructive ahead of an expected summer slowdown.

Covered bond bankers were positively surprised by the reception enjoyed by the new issuance, given the time of year and difficult periods experienced in recent months.

“It’s actually a very constructive market,” said a banker involved in the latest supply, “surprisingly so, because you normally think of the second half of July as things already slowing down and activity is rare. But there have been some pretty strong trades – SG yesterday and then RBC today, and last week as well.

“Spreads have tightened quite a bit over the last few days,” he added, “especially after the US CPI. The levels are quite attractive for issuers, the fact that supply is lower helps the new issuance to perform in the secondary market, and when a new execution hits the screens, you have the spotlight for yourself, essentially.”

Leads Crédit Agricole, HSBC, ING, LBBW, NordLB, RBC and Santander announced the Canadian deal this morning and went out with guidance of the mid-swaps plus 38bp area for a euro benchmark-sized July 2028 issue, expected ratings Aaa/AAA/AAA (Moody’s, Fitch, DBRS). After around an hour and 40 minutes, they reported books above €1.5bn, including €25m of joint lead manager interest, and after around two hours and 50 minutes, they set the spread at 34bp for an expected size of €1.25bn on the back of books above €1.975bn. The size was ultimately set at €1.5bn (C$2.22bn) on the back of books above €2.075bn, with the final order book size given as above €2bn, including €25m of JLM interest.

“Happy days,” said a syndicate banker at one of RBC’s leads. “We announced an expected size of €1.25bn, giving us the flexibility to upsize, and the book held together very well and even grew after that update, when you could have expected some attrition in the book after tightening 4bp and also going inside a threshold like 35bp.

“Apparently people found the level quite reasonable, and so we were in a strong position to print €1.5bn against a €2bn book.”

Bankers at and away from the leads put the new issue premium at around 5bp, given fair value of around 29bp. According to pre-announcement comparables circulated by the leads, RBC September 2027s were at 25.5p, mid, October 2028s at 29.5bp and June 2029s at 34.5bp, while Bank of Nova Scotia January 2028s and HSBC Canada March 2028s were at 29bp and 30.5bp, respectively, and Fédération des caisses Desjardins du Québec and National Bank of Canada April 2028s were at 34.5bp and 34bp.

SG had yesterday (Monday) attracted an aggregate €5.1bn-plus of orders to its €2.5bn dual-tranche issue, the largest euro covered bond transaction since a €3bn UniCredit dual-trancher on 6 June. The final book for the French bank’s €1.25bn three year tranche was above €2.75bn and for the €1.25bn seven year tranche above €2.35bn, with both tranches tightened 5bp from the mid-swaps plus 13bp area and plus 34bp area, respectively, to 8bp and 29bp. The new issue premiums were put at 5bp-6bp for the shorter tranche and 7bp-8bp for the longer.

Syndicate bankers attributed the “super-strong” transaction to hitting the maturity sweet spot with the three year tranche, and attractive pricing in both tenors, which was deemed particularly helpful for the seven year tranche. The seven year was the longest-dated euro benchmark in almost four weeks, since a €500m eight year for Aegon on 21 June.

Coming the first working day after France celebrated Bastille Day on Friday, SG’s trade underlined the opportunities available despite the time of year. Further supply expectations are nevertheless modest.

“The pipeline is quite thin and there’s no real visibility on what might come,” said a syndicate banker. “Things could continue at the current pace, but I would expect this week to be the last before holidays really kick in, with the ECB and Fed meetings next week.”