Bank of Nova Scotia is out with a three-year US dollar covered bond, tapping into a market that bankers say has this week proved its resilience and effectively dislocated from more turbulent asset classes.
On an otherwise quiet day on the FIG front while public holidays across Europe shuttered the euro primary market on Thursday, BNS took centre stage with its US dollar offering.
Bookrunners HSBC, RBC, Santander, Scotiabank and Standard Chartered opened books in European hours with initial price thoughts of SOFR mid-swaps plus 65bp area. The 144A-registered deal is set to price later today, during US hours.
The trade is BNS's second visit to the US dollar covered bond market this year. In March, the bank raised US$2.25bn with a five-year transaction.
That 2.17% March 2027 transaction was bid at 68bp at Thursday's open, according to Tradeweb figures.
Canadian lenders have provided the bulk of covered bonds issued in the currency this year. Besides BNS, Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada and Toronto-Dominion have also taken significant size out the market, with US$2.5bn, US$1.5bn, US$1.25bn and US$2bn deals, respectively.
BNS's new issue follows a rarer US$1bn four-year covered bond offering from Santander UK, which was priced 2bp inside IPTs at 70bp over SOFR mid-swaps on Tuesday.
"2bp tightening in a tricky market when there weren’t any other dollar transactions that day was actually a pretty good result and a testament to the fact that the dollar covered market is very resilient and operates in isolation versus equities, IG credits et cetera," said a banker at one of the leads.
It was the first US-dollar denominated UK covered bond in over two years. The last deals came in February 2020, when Santander UK printed a US$1.25bn trade and Nationwide Building Society printed a US$1bn transaction, both with three-year tenors.
Given all outstanding UK covereds in the currency are within one year of maturity, bankers said that determining fair value for Santander UK's deal was challenging.
They estimated, however, that the cost of funding in US dollars was roughly equivalent to what Santander UK would have been able to achieve with similar deals in euros or sterling.
Demand for the 144A-registered deal peaked above US$1.4bn, according to bankers.