TWO of Australia's biggest banks are planning to test support from global investors for covered bonds, with the push coming just days after Canberra approved new rules allowing banks to sell the new form of bonds.
The race is on between Commonwealth Bank and National Australia Bank to become the first Australian lender to issue a covered bond, with both planning a series of investor meetings in Europe and the US from later this month.
While any transaction could still be some time away, this could translate to the raising of hundreds of millions of dollars in funds.
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A covered bond gives money market investors a claim on the underlying assets such as mortgages if a bank runs into difficulty.
Previously depositors had the rights to all of the assets of a failing bank.
This makes the bonds more attractive to investors, potentially allowing banks to borrow funds from global money markets at a cheaper rate.