National Australia Bank became the fourth of the Australian majors to launch a US dollar benchmark covered bond, yesterday (Tuesday) selling a $1.25bn (Eu997m) five year deal, while CRH finally tapped the long end of the market, raising Eu750m this morning.

NAB priced its deal at 100bp over mid-swaps, in line with guidance of the 100bp over area, on the back of some $1.5bn of orders. Barclays, Deutsche Bank, HSBC, NAB and RBC Capital Markets were lead managers.

National Australia Bank

A lead syndicate banker put the new issue premium at around 6bp, based on secondary levels of around 94bp over for outstanding dollar covered bonds from the other three Australian majors, and said that this seemed the appropriate level to get accounts involved. A banker away from the deal saw the premium as slightly higher, putting the most recent Australian five year dollar benchmark, Commonwealth Bank of Australia March 2017s, at 86bp bid. ANZ Banking Group and Westpac Banking Corp have November 2016s outstanding.

NAB’s pricing, equivalent to 129.5bp over Treasuries, is the tightest against mid-swaps of any Australian benchmark in the US dollar market so far, with all such supply having been in five years.

The lead syndicate official said NAB’s bonds were in strong demand and that although there were some “chunky” orders the deal was well placed.

“It’s in many hands,” he said. “The market is looking for paper and Australia has a good story, not connected with Europe.”

Familiarity with the Australian housing market among US investors, stemming from exposure to Australian RMBS, contributed to investors’ interest in the transaction, he added.

Leads Barclays, HSBC, Natixis and Société Générale priced the Caisse de Refinancement de l’Habitat tap of its 3.6% March 2024 paper at 103bp over mid-swaps, after having gone out with guidance of the 105bp area. A long dated deal for the French issuer had been rumoured for several weeks, with a 10 year at pricing of around 100bp-110bp over having been discussed.

Market participants had suggested that while the market had remained open to CRH, execution could have been complicated by low yields potentially deterring investors and a cheapening of French government debt that limited the OAT spread to be paid by CRH.

A syndicate official away from the leads said that an ongoing sell-off on the Bund and the maturity of today’s tap made successful execution possible. He noted that an increase in yields of 20bp in recent sessions and the choice of the 2024 maturity – CRH’s longest dated – enabled a yield of just over 3%.

“With that, the target of French institutional investors, particularly insurers, was met,” he said.

He saw the spread versus the October 2023 OAT at 19bp, which he said was remarkable, if not surprising. Another syndicate official suggested that some investors would not have participated because of the low spread over the government, but said that this did not appear to have stopped the leads from executing the deal quickly and successfully, with an order book of some Eu1.2bn. The deal size is understood to have been capped at Eu750m.

The syndicate official said that he saw the spread of the new issue as being close to secondaries, while the other said that the outstanding 2024 paper had been quoted at the 100bp area versus mid-swaps before the tap was announced.

The last new French benchmark covered bond was a Eu1bn deal for Axa Bank Europe SCF backed by Belgian residential mortgages on 3 April, with the last for a purely French deal having been a Eu1.5bn deal for Crédit Agricole Home Loan SFH on 29 March. Since then the only French issuance has been of much smaller taps than CRH’s.

And with French issuers said to be well funded for the year, having been heavy issuers in the first quarter of the year, bankers do not expect supply to pick up soon. One also advised against further new issuance this week.

“It would not be a wise attitude to surface individually in primary shortly and before the Greek election,” he said. “It would just not be investor friendly.

“Visibility on the Greek situation has to come back before French issuers can tap the market individually. CRH’s move was the right one for French covered bonds.”