CBA attracted over Eu1bn of demand to a Eu750m seven year covered bond today (Monday), sold alongside a Eu750m long five year senior issue. The spread impressed, with Aussies trading near historic tights, but demand fell short of recent deals from Australia and New Zealand.

Commonwealth Bank of Australia (CBA) held a European roadshow between Monday and Friday of last week, arranged by UBS, ahead of a potential euro benchmark covered bond and/or senior unsecured transaction. It then announced a seven year covered bond and a long five year senior unsecured bond this morning, via leads Barclays, BNP Paribas, CBA and UBS.

The covered bond was launched with guidance of the 10bp over mid-swaps area, before the spread was ultimately fixed at 6bp and the size at Eu750m (A$1.05bn) on the back of orders over Eu1bn.

Bankers said the seven year covered bond offered a new issue premium of 1bp-2bp, seeing CBA May 2022s at flat, bid, and July 2026s at 9bp. They noted this was in line with recent supply.

“It’s a good price for CBA, whichever way you look at it,” said one. “Australian spreads are nearing historically tight levels.

“The deal is not looking like a blowout, but it looks like a respectable outcome.”

But another banker away from the leads said the result was underwhelming.

“They clearly were able to tighten from start to end and the price is OK, but I think it’s more about the size and the demand,” he said. “In those respects, they fell well short of the two recent deals for NAB and Westpac NZ – which of course is a Kiwi entity and not as established as the Australians.”

CBA’s new issue is the second euro benchmark covered bond from Australia this year, following a Eu1.25bn five year for National Australia Bank on 21 March, and comes after Westpac NZ on Friday sold a Eu1bn five year. NAB’s deal attracted orders of over Eu2.9bn, while Westpac NZ attracted Eu1.9bn.

“CBA is the third issuer from the same region coming with a deal with an intermediate maturity – and therefore targeting the same investors – within just two weeks,” said the banker. “If they had to do a deal, they should have focussed on a different maturity.”

CBA sold two longer dated euro benchmark covered bonds last year, a Eu500m 15 year in January, as part of a dual-tranche offering alongside a Eu750m five year, and a Eu1.25bn 10 year in July.

Today’s senior unsecured bond was launched with guidance of the high 30s over mid-swaps. The spread was fixed at 32bp and the size at Eu750m, on the back of orders over Eu1bn.

Maureen Schuller, head of financials research of ING, noted that the spread between Australian covered bonds and senior unsecured bonds had reached a record tight level at the end of February, but that senior spreads have since widened while covered bonds have tightened.

“However, based upon the historical relationship between Australian senior unsecured and covered bond spreads in the past three years, senior unsecured spreads are currently still around 3bp tighter compared to where one would expect them to be based upon current covered bond spread levels,” she said.