Bank of Nova Scotia, the Canadian bank with the largest exposure to Latin America, sold US$750 million of loss-absorbing hybrid securities amid mounting concerns about the spillover effects of U.S. Federal Reserve rate hikes on emerging-market economies.

Scotiabank priced 60-year so-called limited recourse capital notes at a yield of 8.625 per cent, down from around 8.75 per cent initially discussed, according to people with knowledge of the matter. That’s an extra yield of 50 basis points compared to Toronto-Dominion Bank’s US$1.75 billion issuance of the securities earlier this month.

“We think Scotia should trade somewhat outside of Toronto-Dominion,” said Peter Simon, a New York-based analyst at CreditSights Inc. in a note to investors Monday before the deal was priced. “We see value up to 8.55 per cent.”

The yield of a Bloomberg index of BBB rated bonds issued by banks reached 6.78 per cent on Friday, the highest since 2010, as investors fret about global financial stability. Scotiabank’s new notes, which are eligible for its Additional Tier 1 buffers, are also expected to be rated BBB- by S&P Global Ratings, its lowest investment grade. That’s one step lower than TD’s notes priced early this month.

Scotiabank’s transaction got an order book equivalent to 2.4 times the deal size, according to Bloomberg News strategist Brian Smith. The lender issued last year US$600 million of LRCNs at a yield of 3.625 per cent, in the first sale of sale of such securities issued by Canadian banks in the U.S. currency.  

Financing in Latin America is becoming more expensive as major central banks raise interest rates to tame inflation and to contain reduced investor appetite for riskier assets, the International Monetary Fund said last week. Scotiabank generated almost a third of its revenue from its Latin America-focused international unit in its most recent fiscal year.

AT1s, the riskiest form of bank debt, have been sold in various denominations in Europe, Asia and the U.S. The securities seek to transfer risk during times of firm-level financial distress to creditors and potentially away from taxpayers.

A representative from Scotiabank didn’t immediately provide a comment.