ASB Bank successfully extended the New Zealand covered bond curve out to 10 years today when issuing its largest euro covered bond, a €750m issue that attracted over €1.1bn of orders at a level bankers said was relatively low versus Australian covered bonds.

After a mandate announcement yesterday (Monday), leads Barclays, BNP Paribas, ASB parent CBA, and HSBC this morning went out with guidance of the mid-swaps plus 15bp area for the ASB Finance Ltd May 2031 euro benchmark-sized transaction, rated Aaa/AAA (Moody’s/Fitch). Books were above €1bn after an hour, and after around two hours the spread was fixed at 12bp on the back of more than €1.1bn of demand, excluding joint lead manager interest, and the deal was subsequently sized at €750m.

The new issue is ASB’s largest euro benchmark and the longest dated euro benchmark out of New Zealand.

“Historically, the New Zealand banks have struggled to add any duration, but given the market backdrop and the fact that curves are very flat, ASB moved into this market yesterday,” said a banker at one of the leads. “The feedback was positive, so they printed the first 10 year from New Zealand.

“They took €750m, which was the maximum that they could do,” he added, “and overall, it was a very nice transaction – particularly given a slightly weaker market backdrop today, with stocks getting clattered.”

The last New Zealand euro benchmark was a €500m five year for Westpac Securities NZ in January 2019 and the lack of supply from the jurisdiction made price discovery tricky, noted syndicate bankers at and away from the leads, compounded by there having been no euro supply from Australia, where most New Zealand issuers’ parents are based, since May 2019.

The lead banker cited Australian CBA 2031s and Westpac 2032s – both €500m trades – at 7bp over mid-swaps, and estimated that, taking into account a pick-up for New Zealand paper, the new issue premium was 1bp-2bp.

A banker away from the leads said ASB’s longest dated outstanding, a €500m October 2025 issued in September 2018, was quoted at 8bp, but agreed that the more liquid Australian paper was a better reference, and put fair value at 10bp-11bp, implying a similar new issue premium.

“Starting at 15bp was sensible because of the long maturity,” he added, “and also potential line issues – they have only issued three €500m deals and you need to get as many people involved as possible for this €750m. They were able to move 3bp to 12bp, which is close to Australian covered bonds, and they only paid around 4bp for the curve extension.

“If the market is ready for ASB,” he added, “it tells you just how ready it is for Aussie names and the other New Zealanders.”

The spread of 12bp over mid-swaps is the highest on a euro benchmark since South Korea’s KEB Hana Bank sold a €500m five year social covered bond at 27bp on 19 January. ASB’s new issue was priced with a yield of 0.274% and coupon of 0.25%.