Fitch expects Australian covered bond issuance in 2015 to fall some A$1.5bn-A$3.5bn from 2014’s total, despite the market having entered “refinancing mode” for the first time in December, with banks – also in New Zealand – turning to senior unsecured and RMBS issuance.

According to Fitch, total Australian issuance in 2014 was A$18.5bn (Eu12.6bn, $14.4bn), in line with its forecast of A$18bn-A$20bn, while New Zealand issuance was NZ$1.2bn (Eu789m, A$1.16bn). For 2015, it expects A$15bn-A$17bn and NZ$1bn-NZ$2bn, respectively.

The rating agency noted that the redemption in December of a A$500m (Eu341m, US$388m) Suncorp-Metway covered bond was a milestone for the market.

“Since 2010-2011, the Australian and New Zealand issuing banks have been using covered bond issuance in part to refinance existing term bank debt along with developing a sustainable covered bond market,” said Fitch.

But the rating agency expects lower levels of issuance for Australia and New Zealand in 2015 as banks continue to diversify their funding and maturity profiles with other funding sources.

“Banks are using more unsecured and/or RMBS funding compared with covered bond funding at this time, generally for economic reasons,” said Fitch. “This helps preserve headroom for covered bond issuance where it is needed in the event of significant changes in the markets.

It noted that Australia’s big four banks have unused capacity in their programmes of around 56% on average.

“The recent depreciation of the Australian dollar will also affect offshore issuance volumes for covered bonds,” added Fitch. “That is because a depreciating Australian dollar leads to smaller issuance in certain foreign currencies than that was previously required to fund the same value over the past three years.”

According to the rating agency, the big four have A$5.81bn of covered bond redemptions in 2015, with ANZ constituting 45.9% of this, while New Zealand issuers have NZ$1.7bn to refinance, and BNZ 58.4% of this.