National Australia Bank launched its second euro benchmark of the year today (Thursday), a Eu1bn 10 year issue that some bankers said came at the right level to attract French accounts, with a Eu2bn order book representing a good result given how Australian spreads have rallied this year.

National Australia Bank

Leads Credit Suisse, Deutsche Bank, NAB and RBS started with initial price thoughts of the low 40s and eventually set the re-offer spread at 37bp over, after having collected Eu2bn of orders in less than two hours.

A banker away from the deal said that National Australia Bank took advantage of demand for Australian names in the long end, both in euros and in dollars, and suggested that “defensive” IPTs were chosen so as to offer an attractive pick-up over French government bonds.

“In euros, you have to rely on the French bid,” he said, “and with OATs at 36bp over mid-swaps, they really wanted to offer some sort of premium to attract those key French accounts.”

Another syndicate official echoed this, saying that although initial price thoughts were generous compared with secondary market levels for outstanding CBA and ANZ 10 year issues – which were around 35bp/30bp over – OAT levels and absolute yield targets will have pointed to a floor on the spread on NAB’s deal.

At 37bp over, NAB’s issue will yield 2%, he said.

“The level sounds generous versus CBA and ANZ in secondaries,” he said, “but NAB is paying the right price in terms of investor dynamics in relation to 2% yield, and OAT targets.

“A Eu2bn order book on a low beta 10 year is no mean feat given how much Australian covered bonds have rallied this year.”

NAB peers ANZ Banking Group and Commonwealth Bank of Australia paid 130bp over and 89bp over, respectively, for 10 year deals that they launched in January and April, and the syndicate official said that NAB could be pleased about the timing of its deal given how much it saved compared with where spreads were earlier this year.

Today’s issue is the second euro deal of the year for NAB, after a Eu1bn five year deal was priced at 100bp over mid-swaps on 13 January, although the issuer has also been active in other currencies.

A syndicate banker at one of the leads said that the deal was launched amid favourable market conditions, and that there is good investor demand for long term euro-denominated covered bonds.

He said that Australian covered bonds are now third in line in terms of investor preference.

“There are Nordic, Canadian, and then Australian bonds,” he said. “They are seen as really good and really solid.”