Australia’s Suncorp sold its second ever covered bond today (Thursday), a A$600m five year deal that came much sooner than planned in response to reverse enquiries from domestic fund managers and met with an “extraordinary” response, according to an official at the issuer.

Simon Lewis, head of funding at Suncorp, told The Covered Bond Report that the transaction had not been planned, with the issuer having completed its funding plan for 2012 with a A$1bn RMBS transaction that settled around six weeks ago.

“We hadn’t planned on issuing in any market until March next year,” said Lewis, “but with what’s been happening globally investors were reaching out and asked if we would consider a small transaction, and at what level.

“The transaction came together quite quickly this week in response to fund manager demand.”

Leads ANZ, Citi, Deutsche Bank and Macquarie Bank priced the A$600m (Eu480m/US$623m) five year transaction at 90bp over mid-swaps this afternoon Sydney time, with indications of interest taken on the basis of the 100bp over area.

The deal was initially capped at A$500m to leave enough in Suncorp’s programme – which, at US$5bn, is smaller than those of the majors – as a failsafe measure in the event that markets deteriorated, said Lewis, but was increased in response to strong demand.

“The response was extraordinary,” he said.

Some A$1.3bn of indications of interest were registered in around 40 minutes, according to Lewis, with these then firming up as orders during a bookbuild of around three hours.

“We would have liked to offer the transaction more broadly,” said Lewis, “to European and UK investors, for example, but given the unusual nature of the demand it would have been irresponsible to keep the books open for longer than necessary.

“It’s not always the case, but when the market sees good value the response can be immediate, and that is what happened this time.”

Suncorp made its covered bond debut at the end of May, opening the domestic Australian market for second tier names with an upsized A$1.6bn dual tranche issue. It comprised a A$1.1bn four and a half year fixed rate tranche, priced at 140bp over mid-swaps, and a A$500m two and a half year floating rate note.

A lead syndicate official on today’s deal said that Suncorp’s December 2016s were trading at around 103bp over prior to launch, and that, at 90bp over for a five year, today’s transaction came with a “reasonably significant negative new issue premium”.

However, he noted that covered bonds are not a very liquid product in the Australian market, and that pricing discovery occurs in the primary market.

Suncorp’s Lewis said that fund managers indicated that they thought 90bp over represented fair value.

A dual tranche A$750m dual tranche deal from Sweden’s Stadshypotek was the last covered bond to have come to the Australian market, on 21 September. ANZ Banking Group was the last Australian issuer to sell a new onshore transaction, coming with a A$3bn dual tranche deal in the middle of March.

Suncorp’s deal comes after Guy Debelle, assistant governor, financial markets, at the Reserve Bank of Australia, last Monday (22 October) remarked that large onshore covered bonds from earlier this year came somewhat as a surprise, as he had expected covered bonds were likely to mostly be used for offshore funding. This was mainly due to investors being drawn to attractive yields on offer, he said, with covered bond spreads having tightened considerably since.