Westpac yesterday (Tuesday) priced its second US dollar covered bond, a well-received dual tranche $2bn three year issue that is the jurisdiction’s first deal in that maturity as Australian issuers increase their share of the US market given Canadian and European absences.

The Australian issuer priced a $1.5bn (Eu1.22bn/A$1.46) three year fixed rate tranche at 80bp over mid-swaps and a $500m three year floating rate note at 80bp over three month Libor via leads Bank of America Merrill Lynch, JP Morgan, Morgan Stanley and Westpac.

The deal was launched into what a syndicate banker said is a hot US dollar market, with a senior unsecured triple tranche for Sumitomo also priced.

“The dollar market is on fire, especially Sukuk,” he said, “and more open at this time than others.”

Qatar is in the market with a $4bn dual tranche deal that is said to have attracted the most demand ever for an SSA – some $24bn.

A syndicate banker on Westpac’s deal said the total order book exceeded $3bn, with a syndicate official away from the deal having heard that orders amounted to around $3.7bn, split between $2.7bn for the fixed rate tranche and $1bn for the FRN.

The deal comes just over a week after Westpac Banking Corporation sold its second euro benchmark, a Eu1bn seven year issue that came at 55bp over mid-swaps last Monday (2 July). The issuer made its covered bond debut in November last year with a $1bn five year that was re-offered at 115bp over, and has also issued in other currencies.

A syndicate official on the deal said that Westpac’s November 2016s were trading at around 91bp over mid-swaps before the issuer’s latest transaction was announced.

Lead syndicate bankers said the deal was prompted by some reverse enquiries, and went very well, with demand coming in throughout bookbuilding.

At 80bp over, the transaction came with a limited to no new issue concession, they said, bearing in mind that there was no three year Australian covered bond outstanding before Westpac tapped this maturity.

“It shows that investors have good liquidity and are looking for high quality paper, especially at the front end,” said one.

One banker said that a lack of Canadian covered bond supply contributed to the success of Westpac’s deal, a factor that another played down to highlight the importance of the standalone quality of the issuer and the Australian asset class for attracting demand.

A syndicate official away from the leads was positive about Westpac’s deal, noting that it validates expectations that the yield curve between three and five years for Australian covered bonds would amount to 15bp-20bp, with Westpac coming at the wide end of this range.

“That was a good plus,” he said.

He also welcomed the floating rate tranche, noting that there is demand from US bank treasuries for this format.

He suggested that another Australian issuer could come to the market this year, but said that benchmark dollar covered bond supply will be fairly thin over the summer as Canadian issuers make the transition to a legislative framework and European issuers hold out for spreads to tighten.

“On the issuer and investor side people are very sensitive to cross-currency valuations,” he said, “and the way it is at the moment neither one is compelled to do anything.”

Another syndicate official put the spread on Westpac’s deal at a euro equivalent level of around flat to mid-swaps, but said that this would be an aggressive spread for the euro market, not least because of where Westpac’s recent seven year euro benchmark came – at 55bp over, although it is said to be a few basis points wider.

He put the arbitrage between dollars and euros at the front end of the curve to around 25bp-30bp.

American accounts bought 64% of the fixed rate tranche, followed by European, Middle Eastern and African (EMEA) investors with 21%, and Asia 15%. Banks took 41%, asset managers 29%, official institutions 13%, insurance companies 10%, hedge funds 5% and others 3%.

The floating rate note was also largely bought by American accounts (70%), followed by EMEA with 17%, and Asia 13%. Banks were allocated 52%, asset managers 35%, pension funds 4%, and insurance companies 3%.