Westpac issued a A$2bn (Eu1.33bn, US$1.49bn) long five year, fixed and floating rate dual tranche covered bond last week, responding to reverse enquiries to make a rare foray into its domestic covered bond market, according to an official at the Australian bank.

The deal is Westpac’s first benchmark Australian dollar-denominated covered bond since November 2013. Since entering the covered bond market, Australia’s big banks have mainly issued covered bonds in foreign currencies.

Jacqueline Boddy, director, debt investor relations at Westpac, told The Covered Bond Report that the issuer had received significant reverse enquiries for an Australian dollar covered bond after launching a Eu1.5bn dual tranche covered bond on 11 May, and on the back of the redemption in February of its first domestic covered bond, a A$3.6bn dual tranche deal.

“Our covered bond programme has two core issuance markets – euros and US dollars – but we have always been clear that from time to time we will tap into other markets, such as the Australian domestic market,” she said. “The demand was primarily covered-only focused, so the transaction would not otherwise cannibalise senior unsecured demand for Westpac.

“And lastly, the transaction made sense from an overall absolute cost of funding perspective.”

Westpac began taking orders for the self-led 5.25 year deal on Tuesday of last week (23 May), at initial price thoughts of the 78bp over swaps/three month BBSW area for a fixed and/or floating rate trade.

It then on Wednesday priced a A$1.6bn floating rate tranche at 76bp over three month BBSW and a A$400m fixed rate tranche at 76bp over swaps, with combined books approaching A$2.5bn.

Westpac said relative value was determined using global covered bond comparables – with the initial price guidance of the 78bp area flat to US dollar long five year comparables and slightly wide of euros – rather than an approach more typical for domestic investors of looking at the spread as a multiple of senior unsecured levels – which it saw as being around 80% in the five year part of the curve.

“We were very pleased with how the deal went,” said Boddy. “The transaction was comfortably oversubscribed, reflecting investor demand from many high quality accounts, and enabling us to price 2bp inside guidance.”

Around 50 accounts participated in the deal. Banks were allocated 58.8% of the floating rate tranche, asset managers 34.6%, central banks and official institutions 6%, securities 0.3%, and MM 0.3%. Accounts in Australia took 79.9%, Asia 14.4%, Europe 5.6%, and the Americas 0.1%.

Asset managers bought 62.1% of the fixed rate tranche, central banks and official institutions 31.5%, banks 3.8%, and MM 2.6%. Accounts in Australia took 86.5%, Asia 8.1% and Europe 5.4%.