Australia

Suncorp-Metway has priced its first covered bond deal since November 2012. The two tranche fixed and floating rate Australian dollar transaction offered an attractive 12bp spread pick up to where the previous covered bond issued by Royal Bank of Canada had been trading.

Commonwealth Bank of Australia (CBA) was set to price Australia’s first euro benchmark covered bond in single digit territory over mid-swaps on Tuesday. The deal, which was announced at short notice and which was slow to build early traction, nevertheless managed to attract new investors, though at 14%, bank demand was disappointing given the bonds are now eligible for their liquidity buffers.

Suncorp-Metway has mandated leads for a five year Australian dollar covered bond, the third in the currency this year and the issuer’s first since November 2012. The deal is expected to be launched this week.

National Australia Bank attracted a high level of European demand for a dollar denominated deal on Tuesday. The unusually broad distribution pays testimony not only to the novel syndication approach, but also the tempting outright yield relative to what would have been seen in euros.

National Australian Bank has returned to the covered bond market for its second deal in less than a week, opening books for the third dollar benchmark of 2014 on Tuesday. In contrast to the previous two dollar benchmarks issued this year, NAB took a global approach to syndication, encouraging interest from Asian, European as well as US investors.

National Australia Bank (NAB) looked set to tap a deal by double the minimum it had expected at less than half the spread the deal was originally offered at only three months ago. The increase comes after draft rules suggested covered bonds issued by banks outside the European Economic Area (EEA) will be eligible for inclusion in the liquidity coverage ratio, boding well for more supply from issuers outside Europe.

Westpac New Zealand tapped the covered bond market for the first time since 2011 on Tuesday. The €750m five year was the most oversubscribed antipodean deal of 2014 and the most granular from the region. Around half the investors were new to the name.

The improving quality of the mortgages which back Australian covered bonds means they require less collateral than in the past to sustain a top rating, said Moody’s in a report on Wednesday. The assessment comes a few days after Fitch’s quarterly overview, which showed a sustained increase in investment mortgage lending. — But this higher risk lending is correlated to Australian house price growth which, since the year 2000, has exceeded both Spanish and Irish house price growth, according to data from The Economist.

Sovereign bond market volatility continued to buffet markets on Thursday and, after the slew of FIG issuance in the last week, there was a degree of supply indigestion. But covered bond bankers did not think there was much to be read into the lacklustre execution of this week’s German and Australian deals. The two issues were solid trades, but for idiosyncratic reasons lacked the sparkle of earlier deals.

National Australia Bank opened books on Wednesday for its first euro benchmark of the year, deciding to follow the well-worn route of others with a seven year tenor, the eighteenth such maturity this year and the fifth this month. Though NAB took advantage of being alone in the market, underlying credit sentiment remains jittery.

Westpac has priced the first dollar-denominated benchmark covered bond of 2014. Though the cross-currency basis swap is unfavourable, the dearth of dollar issuance has caused spreads to tighten and the cost of funding was close to what it could have achieved in euros. The strong result is likely to have piqued interest in the market among Canadian and other Australian issuers.

Resimac and RedZed extended non-bank lenders’ second quarter dominance of the Australian RMBS market this week, but a big four bank is prepping a deal and ING Bank Australia is also set to embark on a global roadshow.