ANZ launched a Eu1bn seven year covered bond yesterday (Thursday) that was priced at the tightest level of any Australian euro benchmark, attracting Eu1.6bn of orders in spite of what some bankers saw as an aggressive spread and the deal’s timing.

The deal was priced at 17bp over mid-swaps by leads ANZ, Barclays, Deutsche Bank and UBS, which had set initial price thoughts in the 20bp over mid-swaps area and guidance at 18bp over.

The deal was the second Australian euro benchmark since the beginning of the year after Westpac priced a Eu1bn seven year deal at 19bp over mid-swaps on 11 April, and the tightest of nine Australian euro issues launched since Commonwealth Bank of Australia priced the first Australian euro covered bond in January 2012 at 100bp over mid-swaps.

A syndicate banker away from the leads described the pricing as aggressive and said that he had heard that a significant amount of orders were lost in the transition from guidance of 18bp over mid-swaps to the re-offer of 17bp over.

A lead syndicate banker acknowledged that 17bp over was very tight pricing and that around Eu250m of orders were dropped with the tightening of the spread, but said that this was not unusual and the deal had been well received.

Luke Davidson, head of group funding at ANZ, told The CBR that the Australian issuer was pleased with the outcome of the deal.

“We were targeting a benchmark and we were able to print it at an attractive level for us and manage to build a strong order book,” he said.

Some syndicate bankers away from the lead questions the timing of the deal, as the transaction was announced on Wednesday, which was a public holiday in most of Europe, and executed on Thursday morning, just ahead of the end of an ECB governing council meeting that resulted in a 0.25% rate cut.

Davidson said that the deal’s launch followed the announcement of the bank’s results, and was supported by positive market conditions.

“We published our half year results on Tuesday and decided that it was a good moment for us to tap the euro market,” he said. “Market conditions were strong and we were advised by syndicates that we would be able to print a successful deal.”

ANZ decided to tap the euro market to maintain a presence in the currency, according to Davidson. ANZ’s last euro benchmark was a Eu1bn 10 year issue launched in January 2012, which was also its first covered bond issue in euros.

“It had been a while since our euro deal, so it was about time for us to issue again and start building our euro covered bond curve,” he said.

The deal allowed ANZ to raise longer dated funding than in the domestic market, where maturities do not usually extend beyond the five year tenor.

Some 75 accounts participated in the transaction, placing Eu1.6bn of orders. Germany and Austria took 39%, the UK 23%, Asia 14%, France 13%, the Benelux 4%, Switzerland 4%, and others 3%.

Managed funds were allocated 36%, banks 25%, central banks and official institutions 22%, insurance companies 14%, and private banks 3%.

The order book was strong and well diversified, said Davidson.

“The book was well diversified by geography and investor type and was scaled back to Eu1bn to promote secondary market performance,” he said.

“International investors are comfortable in investing in ANZ covered bonds because ANZ is a fairly rare issuer with a strong credit quality, and because the Australian economy and financial system is in relatively good shape,” he added.

This morning the deal was trading at 16.5bp/15.5bp over mid-swaps, according to the lead syndicate banker.

He highlighted the large share of the deal taken by real money accounts, 75% in total, saying that this was a sign of support for tight transactions from that category of investors in spite of the low yield and low spread environment.

Davidson said that future ANZ issuance plans will be focused on other markets, such as the US and Australian dollars.