ANZ yesterday (Tuesday) reopened the US dollar covered bond market with a $2.25bn (Eu1.79bn) dual tranche three year issue that is the largest benchmark dollar covered bond from an Australian issuer, while an SEC registered RBC deal is expected in the first half of this month.

The Australia & New Zealand Banking Group deal comprised a $1.5bn three year fixed rate tranche and a $750m three year floating rate tranche, with demand across the two totalling $3.4bn, according to a syndicate official at one of the leads – ANZ, Citi and Morgan Stanley.

“To get $2.25bn across a covered bond trade is pretty nice,” he said, “and we took size at arguably flat to through comparables.

“There’s pretty strong pent-up demand for covered bonds, and the reception was very good.”

The deal is the largest dollar covered bond for an Australian issuer.

The fixed rate tranche was priced at 61bp over mid-swaps, the tight end of guidance of 63bp plus or minus 2bp, and the floating rate tranche at 61bp over three month US dollar Libor.

A Westpac July 2015 issue was trading at around 61bp Z-spread, said the lead syndicate banker, with ANZ pricing a slightly longer dated deal, featuring an October 2015 maturity, flat to that.

“That’s a pretty impressive outcome,” he said.

A syndicate official away from the leads said that the covered bond tranches of ANZ’s deal had gone very well, while the senior unsecured issue, with $750m seen as sub-benchmark size, appeared to have been more challenging.

“It’s very encouraging,” he said of the ANZ covered bonds. “For issuers looking at the markets it could steer them toward covered bonds over senior unsecured given the demand there was.”

However, given strong market conditions in credit issuers may wish to reserve covered bond issuance for more challenging times, he added.

He noted that the addition of a floating rate tranche also took place during a Westpac $2bn three year dual tranche issue in early July, and that this showed bank demand.

The covered bond deal was initially intended as a fixed rate transaction only, and was announced as such at the open of Asian markets yesterday, said a lead syndicate official, with “decent traction” made in Asia and Europe before the focus switched to the US market.

Reverse enquiry from US accounts led to the floating rate tranche being added, said the lead syndicate banker.

ANZ also added a $750m five year senior unsecured tranche to the transaction, which was priced at 135bp over US Treasuries.

US accounts took 42% of the ANZ floating rate covered bond, Canada 20%, Europe 24%, Australia 10%, Asia 3%, and others 1%. Banks were allocated 41%, fund managers 35%, government entities 13%, insurance companies 10%, and others 1%.

On the fixed rate tranche the US took 59%, Asia 15%, Canada 12%, Europe 9%, Australia 3%, and others 2%. Banks were allocated 48%, fund managers 34%, insurance companies 7%, hedge funds 6%, central banks 4%, corporates 3%, pension funds 3%, and others 2%.

Royal Bank of Canada is meanwhile expected to launch the first fully SEC registered covered bond in the first half of this month, according to a syndicate banker, after the SEC registration went effective at the end of July. The issuer was in blackout before releasing third quarter results on 30 August.

“It’s not necessarily imminent, but it is somewhat expected,” said the banker. “It’s on people’s radars.”

A covered bond gathering in Munich next week incorporating a European Covered Bond Council plenary could influence the timing of a transaction, he added.

The Covered Bond Report’s Neil Day will be moderating a panel on the US dollar market at the ECBC plenary next Wednesday featuring, among others, David Power, vice president, corporate treasury at RBC – we hope to see you there.