BNS, RBC round off busy Canadian opening

Bank of Nova Scotia capped a busy and varied January for Canada’s banks with a $2.65bn (C$3.82bn, €2.54bn) three-tranche senior bail-in trade on Thursday of last week (30 January), two days after compatriot Royal Bank of Canada had issued the first Canadian euro benchmark covered bond of 2025.

Ranging across currencies including euros and sterling, the bulk of Canadian supply nevertheless came in the US dollar market, where — on top of a $1.5bn five year CIBC covered bond — some $12bn had hit the market from the country’s banks even before BNS’s three-parter.

BNS approached the market the day after the conclusion of the latest FOMC meeting — with the Fed having, as expected, held rates — and after the release of US GDP figures in the morning joined seven other issuers in the primary market but, as the only core FIG issuer of the day, gaining the full attention of the targeted audience, according to Daniel Kim, director, US syndicate, at joint bookrunner Crédit Agricole CIB.

“We were cognisant of the fact there was combined new issuance volume of over $20bn and Scotiabank was one of the last Canadians in the marketplace,” he said, “but the key consideration was that the market remained extremely receptive to risk.

“Rates had been fairly volatile, but there had been no negatives yet from the global tariff situation, so it was a question of striking while the iron was hot.”

The Canadian bank went out with four year non-call three and six non-call five tranches potentially in fixed and floating rate format, with the longer dated issuance diversifying from the prior Canadian supply and the shorter fulfilling BNS’s needs.

Initial price thoughts were US Treasuries plus 90bp-95bp and plus 105bp area (and floating rate equivalents), respectively, for the 4NC3 and 6NC5 tranches, with a size target of $2bn flagged.

With overall demand totalling some $4.7bn when guidance was set around three-and-a-half hours later, but interest in fixed rate paper significantly stronger, the potential 6NC5 tranche was dropped after just missing the minimum size target.

Levels of SOFR plus 89bp and Treasuries plus 70bp were set for the 4NC3 floating and fixed rate tranches, respectively, and Treasuries plus 82bp for the 6NC5 fixed rate.

BNS ultimately printed $1.25bn and $400m 4NC3 fixed and floating tranches, and a $1bn 6NC5 fixed rate tranche on the back of a $4.05bn final order book.

“Scotiabank could exceed their initial size ambitions,” said Kim (pictured). “After the 22bp-23bp of tightening, book attrition was super-low for the 4NC3 FRN and limited for the fixed tranches.”

Meanwhile, after more than a year’s absence from the euro covered bond market, RBC successfully returned on the Tuesday (28 January) with its such issue since July 2023, and the first Canadian euro benchmark covered bond this year, the last having been a National Bank of Canada four year in October 2024.

The pace of covered bond issuance has been slower than in previous years, partly driven by the collapse in the euro swap spread in the back-end of 2024 — with the 10 year euro swap trading through Bunds — which ultimately led to the market repricing wider, as investors wanted a pick-up versus SSAs. Issuers were also less keen to tap the market, as covered levels became fairly expensive to where they could fund in senior preferred.

However, net negative euro covered bond supply and high investor cash balances to be deployed in primary contributed to a bullish run in the first three weeks of January, with orderbooks multiple times oversubscribed and issuers able to move pricing aggressively from guidance.

These positive execution metrics encouraged RBC to tap the market and build upon the strong momentum, according to Matthew McFarlane, FIG syndicate at joint bookrunner Crédit Agricole CIB.

RBC opened books for a five year euro benchmark covered bond with guidance of the mid-swaps plus 46bp area. The deal enjoyed strong demand in the first hour of bookbuilding, with several high quality triple-digit orders from real money investors. The book peaked at €2.75bn, giving the leads the confidence to set the final spread at mid-swaps plus 40bp and solve for size thereafter. RBC was ultimately able to print €1.5bn from a €2.55bn final book, encountering very little book attrition.

“RBC was refreshing its euro covered curve and despite some idiosyncratic dynamics affecting outstanding covered bond secondaries, which can be illiquid, looking at recent primary supply, the final print of mid-swaps plus 40bp illustrated a zero new issue concession and was well inside the secondary market level of direct peers,” said McFarlane. “The opportunity to buy RBC is rare and the pick-up on offer versus core names was attractive — there was very little pushback from the investor community when we moved to the final pricing iteration”

“Should other Canadian issuers want to come to the euro covered bond market,” he added, “they can expect a similarly positive reception.”