CBA followed Westpac into the US dollar market to successfully build a $1bn five year deal on the back of reverse enquiries yesterday (Thursday) after Caffil sold a lead-order driven Eu500m deal, but bankers were modest in their expectations of any market reopening even if a Greek deal is reached.

Commonwealth Bank of Australia’s new issue came after a $800m three year FRN from Australian peer Westpac that reopened the dollar covered bond market on Wednesday, with the last benchmark deal having been a DNB Boligkreditt $1.25bn six year on 20 May.

Leads CBA, HSBC, RBC and Toronto-Dominion launched the $1bn (A$1.34bn, Eu905m) five year deal with initial price thoughts of the mid to high 40s over mid-swaps. The re-offer was fixed at 45bp, after guidance had been set at 45bp the number.

A syndicate official at one of the leads said the issuer had tapped the market after receiving significant reverse enquiries.

“Having observed the execution of dollar triple-A products, whether it was the Westpac or some of the SSA names that are going through, CBA were also conscious that there appeared to be some reasonable dollar liquidity available,” he added.

“They looked at the market in a relatively short order, and chose to try and access that liquidity through a new benchmark.”

A syndicate official away from the leads said the issuer had selected the right tenor and managed to build a decent size, but said there was some price concession due to wider market conditions. He noted that most recent US dollar-denominated deals, including an ANZ $1.25bn five year on 19 May as well as various Canadian and Nordic issues, had been printed at 37bp over.

“The level of 45bp is significantly wider than where we were for dollar trades just a couple of months ago,” he said. “No matter the name, 37bp was the standard. 8bp is a big move, so even the dollar market is showing the impact of these recent troubles.”

However, he added that the euro swap rate had widened by more than this 8bp, meaning the deal benefitted from favourable arbitrage. The lead syndicate official said the new issue came at a similar level to what CBA could have achieved in euros.

“But in terms of execution risk,” he added, “the dollar market offers more certainty right now, more visibility in terms of who your investors are going to be, and probably a higher potential volume at present.”

Noting that the issuer’s June 2019 paper was quoted at 38bp, bid, while Westpac March 2020s were at 45bp, the lead syndicate official said the deal offered a new issue premium of 2bp at most.

“The deal went very well,” he added, “and the dollar market is looking good.”

Citing the reverse enquiries that contributed to Westpac’s deal, a syndicate official away from the leads said there appeared to be solid demand for dollar covered bonds.

“There does seem to be decent depth in that market, as shown by the fact investors are asking for this paper,” he said.

Another syndicate official away from the deal acknowledged that dollars present an attractive alternative for some issuers, but stated it is a relatively small market with regards to investors.

“Only the strongest names can do $1bn trades here and there,” he said. “It is an option for Aussies, the Nordics, and even UK banks, but I would rather think we will see a cautious reopening of the euro market next week than a flurry of dollar deals.”

Caffil yesterday launched the first benchmark-sized euro deal for three weeks yesterday, but bankers said the Eu500m three year issue was more akin to a club deal than a typical transaction.

A syndicate official away from the new issue suggested that other issuers may take a similar approach if they chose to tap the euro market next week, despite positive headlines regarding Greece as it submitted its final proposals to its creditors.

“There’s still a lot of uncertainty there, so I would expect defensive trades, such as Caffil’s, to be the new norm in the euro market for the foreseeable future,” he said.

Another syndicate official acknowledged that market sentiment had improved today (Friday), but said he was sceptical that the euro market would reopen fully on Monday.

“Potentially, yes, the euro covered market could restart, but I am not sure these latest developments will lead to the big wave of supply that some people are expecting,” he said.

“Greece will be an ongoing story, and I think today’s optimism is a bit overdone. I think it would still be wise to wait and see where we are Sunday.”