Australian banks are loading up covered bonds together with Westpac and Bank of Queensland. They plan to choose offshore jurisdictions for their newest offerings. An Australian DCM manager argued that the covered bonds are the most potential product in the region. He added that the firms have provided the lowest pricing for issuers. Plus they provide an attractive return for Triple A investors.
However, the Australian market offers the cheapest pricing, but it does not note the depth. This is because local investors have recognized the banks inside out. Thus, they would choose extra pick-up from their senior unsecured notes. The euro market has the depth although the Bank of Queensland said the sale was difficult using conditional pass-through structure. If the issuer defaults on repayment, the CPT format is helpful for maturity extensions.
Banks like BoQ, Australia’s seventh largest asset terms, find it beneficial because they can avoid potential risk of a fire sale. However, one banker argued that CPT structure might limit the terms of the investor base. This is because some investors are binary. It means that they have seen such a structure and thus won’t invest there. Meanwhile, others prefers the additional pick-up terms of spread more.
The book order closed above a $643m deal at mid-swaps, this is plus 30bp. Actually the tidal of this deal is bigger than BoQ previous €500m in five-year covered bond prints. Another banker remarked that the firms did not even manage to tighten. Thus, their book was barely covered, this became the new reality. In fact, covered bonds are not as easy as it seems. Unless they are core issuers. Westpac on the other hand, raised $1.2bn of covered bond transactions. It was the best ride the company could raise.
