ANZ overcame tricky market conditions yesterday (Tuesday) to sell Australia’s first covered bond, a $1.25bn (Eu928m/A$1.24bn) five year deal that marks the beginning of what an official at the issuer said is expected to be a consistent use of the US dollar and euro markets.

Bookrunners ANZ, Citi, Nomura and UBS, with joint leads HSBC and Morgan Stanley, priced the 144A/Reg S transaction at 115bp over mid-swaps, in line with guidance, on the back of an order book of around $1.5bn, with US accounts said to be in the majority.

John Needham, head of structured funding, group treasury at ANZ, said that the transaction went very well.

“Conditions were pretty tough in the European time zone yesterday,” he said, “but for us to bring an inaugural transaction into the US and upsize it to take $1.25bn at 115bp over mid-swaps – we’re very happy with that.”

He said the move into covered bonds was about diversifying the issuer’s investor base, and that more than 60 accounts participated in yesterday’s issue, with strong participation from asset managers and insurance companies that comprised two-thirds of the book.

“Based on recent US dollar covered bonds we had a pretty good read on how our deal would shape up,” said Needham, but investors surpassed our expectations.”

ANZ expects to tap the US dollar and euro markets with covered bonds on a consistent basis, he said. The issuer has an offshore funding need of around A$10bn a year, which it expects to split evenly across senior unsecured and secured funding.

“Of the A$5bn we plan to issue in covered bonds each year, we will split that between euros, US dollars and Australian dollars,” he said.

A syndicate official away from the leads welcomed the arrival of the first Australian covered bond, and said that ANZ’s deal was very respectable given the market backdrop.

“The market may have slightly curtailed demand that would have been there,” he said. “It’s a very good result.”

Australian treasurer and deputy prime minister Wayne Swan also welcomed ANZ’s issue.

Treasurer Wayne Swan welcomed the first Australian covered bond

“Today the first covered bonds were issued under a key Gillard Government reform to provide cheaper, more stable and longer term funding for our financial system, and improve the flow of credit in our economy,” he said yesterday. “All Australian banks, credit unions and building societies can now benefit from the issuance of covered bonds to access cheaper sources of funding.

“Today’s issuance by ANZ marks the next step in ensuring that our banks, credit unions and building societies have the capacity to safely lend for the decades to come.”

A syndicate banker on the deal said that some orders were lost from accounts that blamed poor market conditions.

“Yesterday was one of the worst days ever,” he said, adding that some market participants were beginning to get blasé about the state of the market.

He said that the leads and the issuer went ahead with the transaction yesterday because they had received indications of interest that suggested a deal of at least $1bn could be achieved.

Pricing took into account widening swap spreads and comparable such as a $1.5bn five year Nordea Eiendomskreditt trade that was around 100bp-105bp on the bid side, with 10bp added to get to the ANZ level of 115bp over, according to the syndicate official.

He said that Canadian US dollar covered bonds were not a very relevant comparison given the government guaranteed collateral, their advantage of proximity to the US, and their established presence in the market.

Pricing of 115bp over mid-swaps in the US dollar market was comparable with around 50bp over mid-swaps in euros, according to the banker. This compares with 63bp over mid-swaps achieved by Norway’s SpareBank 1 Boligkreditt on a Eu1bn five year yesterday.