Westpac became the third Australian issuer in a row to opt for a covered bond today (Tuesday), pricing a EUR1bn five year benchmark at a level that showed the widening momentum in euro spreads, after National Australia Bank sold a $1.15bn five year benchmark yesterday.

Westpac’s covered bond was the third from Australia in four sessions, with ANZ having sold a EUR1.25bn four year on Thursday and then National Australia Bank (NAB) yesterday.

“It’s interesting to observe the behaviour from the Aussie banks in general over the past week,” said a syndicate banker, “where you’ve seen ANZ print only their second euro covered since 2014. With Aussie banks typically seeing covered bonds as an asset class for rainy days, that probably shows you how challenging they perceive the markets to be right now.

“I guess that is the beauty of the asset class, giving folks an instrument that can be utilised to take advantage of markets even when you see some degree of risk and volatility.”

Westpac leads BNP Paribas, Deutsche, JP Morgan and Westpac started with pricing of the 22bp area for the five year euro benchmark, and priced the EUR1bn deal at 20bp over on the back of a book of some EUR1.2bn. The issuer also printed a EUR1bn two year senior unsecured FRN at 32bp over Euribor after having attracted over EUR2.75bn of demand.

Bankers away from the deal highlighted that Westpac’s pricing was 7bp wider than the 13bp over paid by ANZ on its four year issue on Thursday for a deal just one year longer. One syndicate banker partly attributed this to ANZ widening to around 15bp today amid a general widening of up to 4bp in covered bond spreads in the past few days.

“Every deal that comes seems to take a little bit more in the way of new issue concession, which is not a great trend in terms of investor reward,” said another syndicate banker away from the deal. “There’s only so long that folks will take that.”

He noted that Westpac may have been satisfied with the level partly because its pricing came the equivalent of 2bp inside where compatriot NAB priced a dollar benchmark in the same maturity yesterday, with Westpac’s starting point of 22bp over equivalent to the 45bp over re-offer of NAB’s $1.15bn (EUR1.01bn, A$1.59bn) trade.

“Fair play to them for getting the EUR1bn,” he added.

NAB’s dollar benchmark was part of a $2.5bn transaction that also comprised three year senior unsecured paper. According to a syndicate banker at one of leads HSBC, NAB, RBC and TD, the five year covered bond attracted some $1.3bn of demand and the slightly odd $1.15bn final size was partly a function of how the senior tranches were sized.

He said NAB had been somewhat brave in announcing the deal in Asian time well before the US had opened after a difficult week including Thanksgiving, but was rewarded with a successful trade. He noted the five year maturity offered an extension beyond $2bn of three year supply from DBS and HSBC Canada last week that had satisfied shorter-dated demand.

The pricing was tightened to 45bp over from IPTs of the 47bp area. The lead banker said that given the lack of five year outstandings, calculating how much the three to five year curve was worth was not straightforward, but that with secondaries trading in the high 30s the deal paid a new issue premium of 6bp-7bp, which he said made sense versus other asset classes.

He forecast that the multi-tranche strategy could become a trend in 2019.

“As markets get more challenging, your average tranche size in any asset class feels like it’s getting smaller rather than larger, and therefore as you see a stable window to enter, there’s a sense that you probably want to get more tranches away into that execution window rather than waiting to execute individual asset classes on an individual basis,” he said.