Premier credit Canada sets record pricing
Canada’s return to international bond markets after a two-and-a-half year absence was met with applause this week as the rare Triple A borrower achieved the tightest spread over Treasuries for a sovereign issuer since 2003.
Canada – one of three remaining G7 countries with a Triple A rating – raised US$3bn through a five-year global bond, which priced at tightened guidance of Treasuries plus 8bp and a coupon of just 0.875% on Tuesday.
As well as scoring tightest pricing by a sovereign bond since 2003 over Treasuries, the transaction also offered the tightest spread versus mid-swaps for a sovereign bond since October 2008.
Final demand was just shy of US$10bn from 205 accounts, dominated by the Americas at 45%, followed by the Europe, Middle East and Africa at 36% and Asia at 19%.
The Canadian mandate was announced via joint leads Bank of America Merrill Lynch, Deutsche Bank, HSBC and RBC Capital Markets mid-morning New York time on Monday, with initial price thoughts of Treasuries plus low double digits.
“All the superlatives in terms of credit quality, demand and pricing came to bear on this transaction”
That attracted indications of interest in excess of US$6.75bn from 100 accounts by the close of business that day.
Official guidance was announced on Tuesday at Treasuries plus 8bp–10bp, and was later refined to Treasuries plus 8bp as books built to more than US$9bn at the New York market open.
Galvanising market’s full focus
Canada’s rarity as an issuer ensured the deal galvanised the market’s full focus, said Bill Northfield, head of SSA origination at Deutsche Bank.
The bond marks the issuer’s first dollar deal since September 2009, when a five-year bond of the same size priced at Treasuries plus 23.5bp. Ten years prior to that it was also in the market with a dollar deal.
“All the superlatives in terms of credit quality, demand and pricing came to bear on this transaction,” said Stuart McGregor, managing director at Bank of America Merrill Lynch.
“Canada was able to raise US$3bn for its international reserves in an extremely cost effective manner providing the international investor community with exactly what it needs at this time,” he added.
The deal also priced through another “top of the class” supranational borrower – the World Bank – which issued a US$5bn 0.875% Aril 2017 bond last week at Treasuries plus 19bp. That bond has since tightened to 14.5bp over Treasuries since.
By investor type, central banks and official institutions took 49%, fund managers 33%, banks 8%, insurers and pension funds 5%, corporates 4% and private banks 1%.
“The extremely high quality and diverse investor base, despite record tight pricing versus Treasuries, was no doubt driven by the deal’s ’trophy’ status in investor portfolios,” said Northfield.
Canada prides itself in having the lowest net debt-to-GDP ratio of the G7 countries. Its ratio is 30%, compared with 68% for the United States, 59% for France, 54% for the UK and 52% for Germany.
It also has a diversified economy, resilient labour market and has seen the strongest employment growth in the G7. Canada and Germany are the only G7 countries to recover more than all of the real GDP and employment lost during the recession.
