NAB priced a $1.4bn five year covered bond yesterday (Wednesday) at a level roughly equivalent to what it could have achieved in euros, and bankers said more issuers are likely to follow the Australian in targeting US dollars, with TD also having taken $1.75bn out of the market this week.

National Australia Bank’s new issue is only the fourth dollar benchmark covered bond of the year, but comes after Toronto-Dominion on Monday sold its $1.75bn five year, which was priced at 95bp over mid-swaps. After the Canadian’s deal, bankers noted that the US dollar market offered attractive funding levels for international issuers and a viable alternative to the euro market.

National Australia Bank leads Citi, HSBC, NAB and TD launched the Australian bank’s five year 144A issue with initial price thoughts of the 100bp over mid-swaps area on the European open yesterday. After the US open, the deal was re-offered at 97bp and the size fixed at $1.4bn (Eu1.27bn, A$1.88bn).

Syndicate officials away from the leads noted that the deal was priced inside the last US dollar benchmark from Australia, a $1.35bn five year for Westpac that was priced at 98bp on 18 February and was seen trading at around re-offer.

“They came 1bp inside their peer for a slightly larger size, which I’m sure they’ll be pleased with,” said one. “It’s also not far off TD.”

Bankers said the spread of 97bp over mid-swaps is roughly equivalent to the level at which NAB would have priced a five year euro deal, seeing NAB Eu500m May 2021s at 32bp, bid.

They added that developments in the basis swap meant that US dollar issuance has become more attractive for certain issuers than was the case earlier this year.

Maureen Schuller, head of financials research at ING, noted that year-to-date the three month/three month five year euro/US dollar basis swap has widened 18bp.

“While the widening in the basis swap has to a certain extent coincided with an underperformance of US dollar covered bonds versus euro covered bonds from an absolute spread perspective, the balance of direct euro funding versus basis swap adjusted US dollar funding has in recent weeks tipped in favour of US dollar issuance for various issuers,” she said.

“Hence we expect to see more issuers targeting the US dollar market, although recent issuance has contributed to some additional spread widening in the US dollar space.”