The Bank of New Zealand (BNZ) has successfully completed a €500 million (NZ$801 million) issue of covered bonds, secured by New Zealand residential mortgages, to European institutional investors.

The bonds, due to mature in May 2015, were priced at 113 basis points over the euro midswap rate. This doesn't, however, include the cost of converting the €500 million back to New Zealand dollars.

At 113 basis points over swap, the price is better for BNZ than other recent covered bond issues by Australian banks, although the three-year term is shorter than the usual five to 10 years. The ANZ Banking Group, for example, paid 130 basis points over swap for a €1 billion, 10 and a half-year covered bond issue this month. Its subsidiary, ANZ New Zealand, paid 95 basis points over swap last October when it sold €500 million worth of five-year covered bonds. Back in November 2010 BNZ paid 62 basis points over swap in a seven-year €1 billion covered bond issue.

The euro denominated issue comes after BNZ Treasurer Tim Main told interest.co.nz earlier in January that the bank hoped to take advantage of a window of opportunity in "a market that has become a little less frozen" to raise at least €500 million to help pre-fund projected funding requirements for the coming year.

Also this month BNZ sold NZ$225 million worth of six-year AAA rated covered bonds to a local institutional investor or investors through a private placement.

Covered bonds, secured by a "cover pool" of residential mortgages written by the bank issuer, typically attract these highest possible credit ratings because investors have dual recourse to the bank and mortgage pool collateral should the issuer default. See more on covered bonds here.