Westpac NZ sold a Eu1bn five year covered bond today (Thursday) that is the tightest benchmark from New Zealand, moving the spread 5bp upon a Eu1.9bn book. Bankers debated whether the strong demand is proof of a warming to New Zealand paper or simply a result of highly supportive conditions.

After completing a three day European roadshow, marketing a euro covered bond with a maturity of five to seven years, Westpac Securities NZ announced a mandate yesterday afternoon for a five year issue.

Leads HSBC, JP Morgan and Westpac launched the deal with guidance of the 12bp over mid-swaps area this morning. After just over 45 minutes, they announced that books had exceeded Eu1bn. Guidance was later revised to the 9bp area plus or minus 2bp, will price within range, on the back of books over Eu1.6bn, before the spread was set at 7bp and the size at Eu1bn (NZ$1.54bn), with the book closing at around Eu1.9bn.

The new issue is the tightest ever euro benchmark covered bond from New Zealand, and the book is thought to be one of the largest ever for the jurisdiction.

“It’s a tight print for New Zealand, and 5bp of spread movement is fairly aggressive,” said a banker away from the leads. “The fact they were able to do that while getting Eu1.9bn books probably partly reflects the lack of supply from the region, and the strength of the Westpac name.

“But I think it could also suggest New Zealand is becoming a more established covered bond market. It hasn’t always been the easiest jurisdiction to sell, but this is an encouraging outcome.”

Another banker cautioned against reading too much into the result, however.

“Anything goes at the moment, so I don’t think you can say conclusively how sentiment is changing for one name or the other,” he said. “The market is just awash with cash, and there has been very limited supply.

“And, that said, I think New Zealand is a jurisdiction that many people have been comfortable with for a while.”

Bankers said the deal offered a new issue premium of around 2bp, seeing Westpac NZ’s June 2021s at around 3bp.

“When I first looked at this, I thought they could have even started a touch tighter than 12bp,” said a syndicate banker. “But in the end it doesn’t matter, as they are pricing very close to fair value.”

The deal is the first benchmark covered bond from New Zealand since October, when ASB Finance sold a Eu500m seven year issue.