A A$700m five year covered bond sold into Australia by the Canadian Imperial Bank of Commerce on Friday provided reassurance to the nascent market that banks will still buy covered bonds even after the Australian Prudential Regulation Authority excluded the asset class from liquidity buffers last month.

There had been fears that Apra’s initial plans for the implementation of Basel III, which are stricter than the Basel Committee’s position, would stifle bank demand for covered bonds, something of particular concern in Australia given that the country’s banks are preparing their first issues. An SSA deal that was under preparation ahead of Apra’s pronouncement, which also excluded SSA Kangaroos from LCR ratios, is understood to have been pulled as a result.

However, CIBC went ahead through leads CBA, CIBC, HSBC and UBS and some three-quarters of the covered bond was sold to banks, the majority from Australia. Wojtek Niebrzydowski, vice president, treasury, at CIBC, said that this was similar to bank participation in the issuer’s first Aussie dollar covered bond, an A$750m three year.

“We had hoped that this would be the case, but we weren’t certain,” he told The Covered Bond Report. “If it had come prior to the Apra announcement, it would have been less challenging, coming after our debut and one of our Canadian competitors.

“Once the announcement came out, we spent a fair amount of time going back and forth looking at whether the market would still be there, and whether we should still go for a five year or instead a three and a half year that would take it up to before the January 2015 Basel III implementation. But ultimately we came to the conclusion that a five should still work and it did.”

Banks were allocated 77% of the paper, asset managers 12%, insurance companies 7%, and 4% went to private banks and others. Australian investors took 83% of the paper, Asia 12%, and others 5%.

The issue was priced at 74bp over mid-swaps. This compares with a re-offer spread of 48bp over for CIBC’s three year debut, which Niebrzydowski said was now 1bp-2bp tighter.

The new issue’s spread is well inside levels at which banks have been raising senior unsecured debt in Australian dollars. Barclays Bank sold a three year in mid-February at 140bp over and Westpac a four year in early February at 110bp over, for example.

Niebrzydowski said that CIBC is pleased to have been able to add Australian dollar issuance to its funding.

“It’s a mature fixed income market,” he said, “with the total amount of Kangaroo issuance last year being around A$30bn. Ultimately it’s not going to provide the same volumes that the US can now and that, theoretically, the euro could, but it has become a very important secondary market for us.”