(17 November 2011 — Australia) ANZ was the first of the Australian banks to complete a covered bond issue, selling US$1.25 billion (A$1.23 billion) worth of five-year notes on the United States’ debt markets on Tuesday.Commonwealth Bank (CBA) was next, hiring banks to help it sell the securities in euros.
Yields on Australian financial debt rose to 269 basis points more than sovereign bonds on 27 October, the widest spread since July 2009, according to Bank of America Merrill Lynch data, on concern Europe’s struggles will prompt a repeat of the 2008 lending freeze.
“The covered bond market has the potential to grow to more than $100 billion over time, becoming a significant source of funding for Australian banks,” said Westpac director of asset-backed securities, David Goodman.
“In the current environment where funding is constrained, covered bonds give the banks access to new markets and new investors.”
Covered bonds are seen as a cheaper source of funding for banks, because the costs of offshore funding have become significantly higher since the global financial crisis.
Covered bonds allow banks to borrow money with a pool of assets on the balance sheet such as mortgages being used as security for the loan, allowing the bank to pay a lower interest rate.
ANZ group treasurer Rick Moscati said the bank was pleased with the strong interest it received from US investors in the first Australian covered bond transaction.
‘‘We expect that covered bonds will become an important part of ANZ’s term funding strategy,’’ he said in a statement.
‘‘Although covered bonds won’t fully resolve the pressure on our cost of funds, they do provide an opportunity to continue to diversify our investor base and further reduce the requirement for senior unsecured debt in offshore markets.’’
ANZ hired Nomura to help manage its US$1.25 billion offering yesterday along with Citigroup and UBS, according to a personal banker involved in the transaction.
National Australia Bank is expected to complete a covered bond issue soon.