Westpac became the third Australian bank to sell a US dollar covered bond this year when it priced a $1.25bn five year trade yesterday (Wednesday). The deal was the second US targeted covered bond this week, after one for SEB, and more supply is expected.

Leads Deutsche Bank, HSBC, JP Morgan, RBC and Westpac whispered the transaction in the high 30s before setting guidance at 37bp over mid-swaps plus/minus 2bp. The $1.25bn (Eu970m, A$1.29bn) transaction was priced at 35bp over on the back of some $1.7bn of orders.

Westpac December 2017s and a National Australia Bank March 2018 served as the main reference points, and were trading around 34bp over bid yesterday morning, said a lead syndicate banker. That puts the new Westpac Banking Corporation issue flat to its secondary market curve. The aforementioned bonds were trading at around 31bp-32bp over mid, added the syndicate official.

Westpac’s deal is its first US dollar covered bond this year and fourth since Australia passed covered bond legislation in the autumn of 2011. It comes after US targeted five year deals for Swedish issuers Stadshypotek and SEB last Thursday (16 May) and Tuesday, respectively, which came at 42bp over and 43bp over.

“The market is really good at the moment,” said the syndicate banker on Westpac’s deal. “SEB gave us comfort and the window was good.”

A banker away from the leads said the level was aggressive, but that it is line with comparables and that spreads have been trending tighter.

She compared the pricing of Westpac’s deal with the 32bp over level at which a three year for Commonwealth Bank of Australia came in January, and said that it is tight versus Canadian paper, with SEC registered issuance from RBC, for example, in the high 20s.

The recent flurry of supply in the US dollar market is in part a function of issuers turning their attention to covered bonds after having already tapped the senior unsecured market in dollars this year, she said.

“A lot of guys focus on getting senior debt out of the way first,” she said. “There will be a few more deals [covered bonds] in the coming weeks.”

A French transaction is said to among those being lined up.

Westpac was the first of the Australian majors to sell a US dollar senior unsecured issue this year, tapping the market with a dual tranche deal on 7 January.

Roughly two-thirds of Westpac’s covered bonds were allocated to US investors, 20% to Europe and the rest to Asia, according to the lead syndicate banker. Banks took around 70%, asset managers 13%, official institutions 10%, and others the remainder.

The bank participation is high compared with that for SEB’s deal, of which banks took 19%. The lead syndicate banker on Westpac’s deal said this could be due to credit capacity/line issues, with more bank treasuries possibly having approval for Australian credit than for Scandinavian names.

SEB’s deal on Tuesday its US dollar covered bond debut. The $1.5bn deal came two months after it sold its first senior unsecured deal in US dollars, and had been planned for a while as part of the issuer’s long term diversification strategy, according to John Arne Wang, head of treasury management at Skandinaviska Enskilda Banken.

“It wasn’t an opportunistic trade,” he told The CBR. “Euros have been our main diversification market but we wanted to add dollars to further strengthen that and bolster our investor reach.”

The deal was timed to avoid running into the holiday season in the US and was a “natural extension” of roadshow meetings taking place at the end of last week and early this week, said Wang.

“It’s also not a given that the market will have the same positive momentum going forward, so we wanted to take advantage of that,” he added.

Leads Bank of America Merrill Lynch, Barclays, Deutsche Bank, Goldman Sachs and SEB priced the $1.5bn deal (Eu1.16bn, Skr9.96bn) at 43bp over mid-swaps, following guidance of the 45bp over mid-swaps area plus/minus 2bp. Some $2bn of orders were placed for the deal and, according to the leads, the deal had the highest number of investors ever in a Scandinavian US dollar covered bond, 68, and relied the least on the top five to 10 accounts.

“The deal was priced at more or less the same level at which SEB could issue in euros and secured our access to the Yankee market,” added Wang. “We had received very positive feedback so in that sense I am not surprised by the outcome but we are very happy with it.”

The issuer paid up versus its domestic market, but not significantly so, he added. An analyst noted that the basis swap advantage of US dollar issuance over euros is negligible.

The order book was very strong, said Wang, with good participation from SSAs, who took 34% of allocations. Asset managers bought another 34%, banks 19%, and insurance companies 13%. US and Canadian investors drove the deal, accounting for 57% of allocations, followed by Nordics and Asia with 14% each, core Europe 13%, and others 2%.