ANZ was able to take out £1bn of three year covered bond funding and tighten pricing 2bp upon its return to the sterling market after more than four years today (Monday), with its rarity cited as supportive of the comeback, which bankers said could encourage further supply, notably from Canada.

Australia & New Zealand Banking Group’s last sterling benchmark was a £750m three year issue in January 2019, which left the issuer with no sterling covered bonds outstanding once it matured in January 2022.

“ANZ is taking a strategic view of sterling,” said a banker at one of its leads, “wanting to reestablish a covered bond line and retain an option in a market that over the past few years has developed into a more frequently utilised alternative to the euro market for international issuers.”

Given the bank’s absence from the market, the mandate for the three year Sonia-linked covered bond was announced on Friday, allowing investors to ensure they had the necessary lines available.

“It was very helpful for them to put a marker in the sand,” said another lead banker, “and that tactic paid off very nicely, with the book building at pace this morning.”

Leads ANZ, Barclays, HSBC, Lloyds, NatWest and RBC opened books with initial guidance of the Sonia plus 65bp area for the December 2026 sterling benchmark, expected ratings triple-A. A little over three hours later, they set the spread at Sonia plus 63bp on the back of books above £1.1bn, and ultimately sized the deal at £1bn (€1.15bn, A$1.92bn) with a final book in excess of £1.15bn.

The first lead banker said the result was very pleasing, also taking into consideration that the sterling market was surprisingly busy across asset classes today, and cited the “rarity cachet” of ANZ as having contributed to the outcome.

“To have taken out £1bn and tightened 2bp is a more impressive result than we’ve had on some of the recent sterling deals, where they might have had the option to improve the size or the price, but probably not both,” he added.

“The issuer possibly would have had the option to actually tighten further, but they didn’t want to be greedy but rather leave something on the table for investors to hopefully see some additional performance.”

The lead bankers put the new issue concession at around 2bp, and said the pricing was inside what could have been achieved in euros or US dollars.

The last sterling benchmark was a £500m three year for DBS Bank on 7 November, which was also priced at plus 63bp.

“All in all, a very pleasing endorsement that – even this late into the calendar year – there are still plenty of buyers and liquidity available for the right names in sterling covered bonds,” said one of the lead bankers. “That means we may well see a few more folks who consider that sterling option, as they look at alternatives to euros over the near term.”

The latest earnings season for Canadian banks kicks off tomorrow (Tuesday), with the major issuers reporting over the coming week.

“There is a Canadian cohort who will have the option of looking at some refreshed covered markets,” added the banker, “whether that be the ANZ sterling or the NAB US dollar transaction last week, as well as Nationwide in euros, which is a new reference for the non-Europeans. Those three fresh prints will give you a little bit more confidence on where the appropriate pricing points might be when weighing up a decision on hitting those markets near term.”

National Australia Bank issued a $1.75bn (€1.60bn, A$2.66bn) five year fixed rate covered bond last Monday (20 November) at 98bp over SOFR mid-swaps, the same level at which Fédération des caisses Desjardins du Québec (ticker CCDJ) had sold a $1bn five year the previous Thursday.

A banker at one of NAB’s leads said pricing in line with IPTs of the 98bp area had been anticipated after CCDJ’s trade, but that a book above $2bn was “pretty impressive”, allowing for the $1.75bn size. The deal enjoyed healthy distribution into North American real money accounts, he noted, with interest potentially boosted by the optically narrow differential between Australian covered bonds and senior paper relative to Canadian issuance, even if this is partly a function of Australian senior paper being preferred and Canadian senior paper being non-preferred.