Canada

The European Investment Bank and the Province of Quebec were well subscribed as they re-opened the dollar SSA market following the extended Lunar New Year holiday. Two more public sector borrowers will follow with dollar bonds on Wednesday, ahead of what is expected to be a busy month in the currency.

Guarantor: CPP Investment Board

Royal Bank of Canada’s £1.25bn five year covered bond issued at 47bp over Sonia on Thursday was the tightest and largest transaction to reference the rate ever issued by a bank from outside the UK. The depth of demand illustrated that the bid for Sonia products has grown.

CPPIB Capital achieved a strong reception from investors for its first sterling bond on Monday with the order book setting a new record as the largest in the currency from a non-UK public sector borrower.

A pair of SSA borrowers hit the euro market on Thursday, raising a combined €2.5bn at impressive spreads. Export Development Canada raised €1bn with its second ever euro benchmark while Dexia Crédit Local was able to ratchet the spread in by 4bp on its seven year.

KfW and Canada both launched dollar benchmarks on Wednesday, bringing a pair of highly subscribed and tight deals. Following their success, two Asian SSA issuers prepare to join the busy dollar market.

Navigating the covered bond market will not be without its challenges in 2020. The Targeted Longer Term Refinancing Operation (TLTRO), European Central Bank deposit tiering and the Covered Bond Purchase Programme have collectively distorted the market, but added to this concoction is the impact of negative interest rates. Against this backdrop issuers, investors and investment bankers gathered in Munich in November to discuss the outlook for covered bonds. It is likely that new issue premiums will gradually tighten, but the path is unlikely to be smooth. January is typically the busiest month, but in 2019, issuers that funded this early paid the highest spreads. And, with the ECB expected to buy in the region of €4.5bn covered bonds a month, issuers will not feel compelled to move early. But the ECB monetary policy has unwelcome implications. Covered bonds have begun to lose value against government bonds, and this will extend if the ECB is unable to loosen restrictions on government bond purchases.

CPPIB Capital is looking to take advantage of a red hot sterling bond market after hiring banks on Monday to prepare its debut trade in the currency.

A lack of supply relative to 2019 and much more aggressive central bank buying ensured that Banco Sabadell, Royal Bank of Canada, Deutsche Bank and RLB Oberösterreich were able to price their respective covered bonds flat to fair value on Monday.

A pair of supranationals opened the Maple market with sustainability bonds this week. The Canadian green market is “going through a growth phase” as more and more domestic investors show interest in the product, according to bankers.

Export Development Canada has started its 2020 funding with a Sonia floating rate note, after the European Investment Bank earlier this week brought the first trade in the format of the year.

RBC Capital Markets is beefing up financial sponsors, aiming to boost its European business during 2020, writes David Rothnie.