Reverse enquiries gave ANZ Banking Group a long sought opportunity to test broader appetite for domestic long dated Australian bank paper with a 10 year covered bond last Friday (9 August), an official at the issuer told The CBR.

The A$700m (Eu475m, US$635m) 10 year deal is the longest dated Australian dollar covered bond sold by a local bank, with five years having been the limit until ANZ’s deal.

Luke Davidson, head of group funding at ANZ Banking Group, said that the domestic Australian bank debt market has historically been dominated by three to five year bonds.

“More recently it’s been a three to five year market dominated by floating rate notes,” he told The Covered Bond Report. “We had been wanting to test appetite for long dated domestic paper for some time, but the planets were never really in alignment.”

A Sydney-based syndicate official said that a few Australian majors were sounding for long dated covered bonds half a year to a year ago, but the response was not conclusive enough in favour of going ahead with a transaction.

He noted that July and August are big months in terms of redemptions, and that contributed to the success of ANZ’s deal.

“I wish I knew whether there is potential for further long dated supply, but it’s had a good impact on the market,” he said.

ANZ’s transaction was the first domestic Australian covered bond since a A$600m five year deal from Suncorp-Metway in November 2012, and the first from one of the four major Australian banks in almost 17 months – a A$3bn four year dual tranche for ANZ in March 2012 was the last.

Davidson said that reverse enquiry for 10 year paper provided the impetus for the deal, with the issuer deciding to go beyond a small private placement and test the market for broader appetite.

“There’s probably also appetite for seven years but we responded to that specific appetite,” he said. “It makes sense to extend our curve with covered bonds rather than unsecured debt.

“It was an inaugural deal in a sense for us, but it sets a reference point and is hopefully a good sign that investor appetite is there,” he added. “I don’t think it will be a one-off long dated deal.”

The deal was self-led, with ANZ pricing it at 100bp over swaps, in line with guidance of the 100bp over area. The issuer had sold a A$1.75bn four year senior unsecured transaction at 85bp over the day before.

A syndicate official away from the transaction said the pricing could be considered to have been on the generous side, but that it was a new product in terms of the tenor and as such could not have been sold aggressively.