Westpac launched only the second Australian domestic covered bond today (Tuesday), a A$3.1bn (Eu2.5bn) five year dual tranche deal, which bankers said highlighted the gap between euro and Aussie dollar levels.

The issuer sold a A$1.7bn fixed rate tranche and a A$1.4bn floating rate tranche at 165bp over via leads ANZ, CBA, HSBC and Westpac. The guidance had been set at the 165bp over area.

Westpac’s deal follows a A$3.5bn five year dual tranche covered bond from Commonwealth Bank of Australia, priced at 175bp over swaps on 17 January, which was the first Australian covered bond in the home currency.

A syndicate official at one of the leads on Westpac’s deal said that CBA’s issue was trading in the low 160s, with 158bp the tightest secondary market level so far.

Some bankers away from the leads suggested that the sizes and levels of these transactions have proved that Australian euro deals should be pricing tighter.

“The levels are a huge deal,” said one syndicate official. “They are way through where euro levels are.

“It highlights that European investors should be buying the Australian paper tighter than they have been.”

Another said that Australian covered bonds in euros should be trading at levels comparable to where the Nordic issuers trade.

“There’s no way a 32bp difference should exist between CBA and DNB Boligkreditt,” he said.

CBA sold a Eu1.5bn five year covered bond at 100bp over on 4 January, compared with the 68bp level of DNB Boligkreditt’s 5.25 year the same week.