National Australia Bank was in the market today (Monday) with a five year covered bond, alongside a three year senior unsecured transaction, that should take US dollar supply this month past $4bn in five transactions, even if outstandings in the currency have continued to shrink.

Leads HSBC, NAB, RBC and TD went out with initial price thoughts of the 47bp over mid-swaps area for the five year 144A/Reg S benchmark covered bond, with the Australian issuer also offering a three year senior unsecured deal in fixed and/or floating rate format at IPTs of the 95bp over Treasuries area and the equivalent in Libor terms.

The five year covered bond is the first dollar benchmark in the maturity since July, when compatriot Commonwealth Bank of Australia issued a $1.25bn (EUR1.06bn, A$1.67bn) deal at 40bp over mid-swaps.

NAB’s new issue comes after $1.25bn and $750m covered bonds for DBS Bank and HSBC Canada, respectively, last, week in 144A/Reg S format, following Reg S-only trades for Lloyds and Deutsche Pfandbriefbank earlier in the month of $750m and $600m, respectively. A deal of $750m-plus would therefore take November supply past the $4bn mark and make it the busiest month of the year, surpassing October, when RBC and then TD offered $1.7bn and $2bn deals, respectively, in the first post-summer dollar supply.

Maureen Schuller, head of financials research at ING, nevertheless noted that despite approaching $13bn this year and modestly exceeding 2017s total of around $12bn, dollar covered bond outstandings have shrunk in 2018. She noted that since the end of 2013 the market has shrunk from $125bn to $75bn.

“This primarily reflects the slower supply activity of Canadian issuers in US dollars,” she said. “In the period 2010 to 2012 Canadian banks issued on average $14bn per year in USD compared to a little over $6bn since 2013.”

Australian issuance has also fallen – with no US dollar issuance from the country in 2017 – while $16bn-$19bn of Australian and Canadian debt was repaid annually in 2015-2017.

Schuller expects a modest rise in US dollar benchmark issuance to $16bn next year – although this will again be shy of redemptions, which total $17bn.

US$ benchmark covered bond supply versus coupon and redemption payments

Source: ING