ANZ has launched a domestic covered bond programme and has mandated a debut that is due to be launched tomorrow (Friday), with initial price guidance showing how well the asset class has performed since Commonwealth Bank of Australia opened the local market two months ago.

Australia & New Zealand Banking Group said today (Thursday) that it has released a domestic Australian dollar covered bond debt issuance programme, and has mandated ANZ, JP Morgan, NAB and Westpac for the inaugural issue.

A dual tranche four year deal in fixed and floating rate format is being marketed at 100bp over mid-swaps. The deal will be the third domestic covered bond issue from an Australian bank, and is set to be priced tomorrow morning Sydney time.

CBA opened the domestic Australian covered bond market with a A$3.5bn issue on 17 January, with Westpac Banking Corporation following with A$3.1bn a week later.

After repricing outstanding bank debt in the Australian market, the first domestic covered bonds have performed strongly. Fund managers at BT Investment Management, who have had an overweight position in the new asset class, noted in their most recently monthly update that Westpac’s five year covered bond had tightened 43bp against swaps from its 165bp re-offer spread by the end of February.

In the Reserve Bank of Australia’s March bulletin, published today, officials in the central bank’s domestic markets department discussed covered bonds in the context of banks’ funding costs and lending rates. They said that major banks have issued more than A$22bn of covered bonds since legislation was passed in October 2011.

“While this has had little effect on the composition of banks’ funding at this stage, given the large stock of existing funding, it has allowed the major banks to achieve funding at longer tenors than is usually available with unsecured bonds,” they said.