Tuesday, 13 November 2018


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Pride of the collection: At the start of 2012 investors were offered a rare chance to purchase what one lead manager called a “collector’s item” in the sovereign bond market. With investors clamouring for Canada’s US$3bn five-year bond offered at historically low spreads, this deal has to be IFR’s SSAR Bond of the Year.

To see the full digital edition of the IFR Review of the Year, please click here.

Canada’s return to international bond markets after nearly two and a half years was such a milestone that investors were prepared to swallow an eye-watering spread to Treasuries just to get their hands on the paper.  

The sovereign managed to achieve its ambition to renew its foreign exchange reserves with ease, paying just an 8bp premium to US Treasuries for the privilege.

Investors had not seen Canada in international markets since September 2009, and before that it had been absent for 10 years.

“Canada is one of those extremely rare credits which manages to galvanise the market’s full focus and garner a spectacular outcome when it funds in the international capital markets,” said Bill Northfield, head of SSA origination at Deutsche Bank, one of the deal’s lead managers, alongside Bank of America Merrill Lynch, HSBC and RBC.

The transaction was many months in gestation but working alongside the leads, Canada was able to select a prime issuance window in early February for its five-year trade which priced at a level not achieved for a five-year Canada issue since 1997.

Canada was also able to set a new record for the tightest pricing for a sovereign bond since 2003, only to be trumped later in the year by Sweden which priced a new Reg S/144a benchmark at 4.75bp over Treasuries.

However, Sweden’s US$1bn trade pales into insignificance in the face of Canada’s US$3bn whopper – which still stands as the largest US dollar sovereign bond issued in Global format in 2012.

Lead banks began marketing the deal to investors in the low double digits over Treasuries, attracting US$6.75bn in indications of interest from 100 accounts at the New York close that day. Following further interest in Asia, books were opened with official guidance set at 8bp–10bp the following morning in London and later revised to plus 8bp as books hit US$9bn.

The final book topped US$9.5bn from some 205 accounts. Of these, 152 were allocated bonds, with central banks and official institutions taking 49% of final distribution. Fund managers accounted for a further 33%, banks 8%, insurance/pension funds 5%, corporates 4% and private banks 1%.

The diversity of the order book illustrated the breadth of investor interest across the Americas (45%), EMEA (36%) and Asia (19%).

 “All the superlatives in terms of credit quality, demand and pricing came to bear on this transaction,” said Stuart McGregor, head of European SSA DCM at RBC.

“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 needed at that time,” he added.

In the week before, German agency KfW, also rated Triple A on the strength of a German guarantee, launched a five-year transaction that priced at 50bp over the reference Treasury note.

Canada, coming well inside that level, inspired another Triple A rated sovereign, the Netherlands, to come to market with its first US dollar drip auction the following week. The Dutch State Treasury Agency also selected the five-year maturity and managed to beat expectations by placing nearly €3.3bn of paper. However, the Netherlands paid a 30bp premium to Canada versus mid-swaps. 

Canada’s landmark deal enjoyed some impressive secondary market performance on the break, tightening 4bp in the first 24 hours versus mid-swaps. In the days after the deal, the bond was back out trading around reoffer, but nine months down the line and the bond was trading 2bp over swaps, and 3bp through the current five-year Treasury note.

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