Bank of Montreal (BMO) priced a Eu1bn five year euro benchmark covered bond yesterday (Tuesday), its first issue off a new legislative programme, and an official at the issuer said it is very pleased with the transaction and that covered bonds will play a key role in its funding programme.

Leads Barclays, Bank of Montreal, Commerzbank and HSBC priced the deal at 9bp over mid-swaps, the tight end of guidance of the 10bp over area that followed initial price thoughts of 10bp-12bp over. More than Eu1.7bn of orders were placed.

“We are very pleased with the transaction and feel it demonstrated a strong inaugural Canadian legislative covered bond issuance for the Bank of Montreal,” said Paras Jhaveri, director corporate funding at Bank of Montreal.

“We had a robust order book in terms of both size and number of high quality investors, including very strong interest from a number of central banks and agencies which supported the transaction,” he added.

A syndicate official away from the leads today (Wednesday) said that the bonds were trading at 8bp over.

Jhaveri said that the deal was intended to support the bank’s goal of expanding the diversification of its wholesale funding footprint, and that this objective was met “given the breadth of investor demand for the trade”, with the issuer opting for euros because it wanted to grow its European investor base.

“Given the strong history of covered bonds in Europe we felt we could achieve this goal by bringing our inaugural Canadian legislative covered bond issuance first to the European market,” he said.

BMO made its covered bond debut with a euro issue in January 2008.

Its latest euro deal comes just over two weeks after the issuer’s legislative programme was approved by Canada Mortgage & Housing Corp, on 11 April.

“We had always planned to look at the covered bond market once we completed the necessary steps to establish a programme under the Canadian legislative framework,” said Jhaveri. “Following the recent completion of this process we monitored the market and felt that there was an opportunity to place a successful trade that fit within the context of our wholesale funding plans.

Covered bonds will form a key part of BMO’s funding programme, he added.

“We will look at various markets and currencies and execute a trade based on our funding needs, investor diversification opportunities and relative pricing,” he said.

Germany and Austria were allocated 36%, the UK and Ireland took 14%, Asia 13%, central and eastern Europe 9%, the Nordics 7%, France 6%, Switzerland 5%, the Benelux 4%, southern Europe 1%, and others 5%.

Central banks and official institutions took 45%, banks 40%, fund managers 8%, corporates 5%, and insurance companies and pension funds 2%.