Commonwealth Bank of Australia got US dollar and Australian supply off to a good start yesterday (Wednesday) via a tightly priced $2bn three year deal that an official at the issuer said was a somewhat opportunistic trade aimed at adding short dated issuance to the bank’s maturity profile.

The deal is CBA’s first short dated benchmark covered bond, and was priced at 32bp over mid-swaps on the back of around $3bn of orders via leads Barclays, CBA and RBC, after guidance of 32bp-34bp over. The spread is understood to be equivalent to 44.4bp over US Treasuries.

Simon Maidment, head of group funding and liquidity at CBA, said that the issuer is pleased with the outcome.

“We launched it with expectations of a $1bn minimum transaction at 35bp over, got to a final book of close to $3bn, and priced a $2bn trade at 32bp over, so we’re very happy with that,” he told The Covered Bond Report.

A syndicate official away from the leads said that the spread on the deal is evidence of a rally since the beginning of the year, and that he would have seen the trade in the mid to high 30bps over at the end of last year.

CBA’s deal came with zero to 2bp-3bp of a new issue premium, depending on how one reads secondary market levels in three years, he said.

“It’s a good name to have at the beginning of the year,” he added.

A banker on the deal said that outstanding ANZ Banking Group and Westpac Banking Corp covered bonds were the main pricing comparables, and that CBA’s deal came with little to no new issue premium.

“Everyone is pretty happy with the trade,” he said. “People thought the pricing was fair and it’s a very nice book.”

He pointed out that Westpac had this year sold a dual tranche three year and five year senior unsecured issue in the US market, providing for a straightforward assessment of the covered bond-unsecured pricing differential.

Westpac sold a $1.25bn three year at 60bp over US Treasuries, and a $1bn five year at 80bp over on Monday.

Maidment said that CBA would typically look to launch a senior unsecured benchmark after releasing its interim results in February, and that yesterday’s covered bond transaction was somewhat more opportunistic and technical.

“Over the past year or so since we were first able to issue covered bonds most of our issuance has been focussed on the five year-plus maturity range,” he said, “so this was an opportunity to add some shorter dated outstandings to our maturity profile.

“As we develop our covered bond programme and the term to maturity of our issuance starts to come down the rationale for a three year probably lessens, but for now it made some sense.”

The deal was launched on the back of cornerstone interest solicited earlier this week, according to Maidment, although investor feedback dating as far back as the issuer’s first sounding of the US market also indicated that a three year deal would be welcomed.

“We had good feedback from almost a year ago about the appetite for shorter dated covered bonds, although more from bank buyers than asset manager type accounts,” he said.

Indeed, bank treasuries took the largest share of the CBA’s transaction, accounting for 40% of allocations, followed by central banks and agencies with around 30%, and asset managers and insurance companies with around 20%.

Around 80 investors were in the order book, with around 80% of the bonds going to 15 accounts, according to Maidment. The geographic distribution was skewed to non-US accounts, he noted, with Europe and the UK taking 45%; Asia, Australia and other countries 15%, and the US with Canada 40%.

“The distribution makes sense, but it’s probably a little bit unusual,” said Maidment, contrasting it with CBA’s last US dollar covered bond, a $2bn five year in March 2012, which was predominantly (around 70%) placed with US investors, and real money accounts such as asset managers, pension funds and insurance companies.

“That probably reflects where spreads were at the time and the emerging status of Australian covered bonds,” said Maidment. “With this trade we saw a lot of typical US dollar liquidity buyers like banks and central banks, who are on board for Australian covered bonds and liked the three year trade.”