National Australia Bank will price the joint largest sterling covered bond of 2013 today (Tuesday), a £500m (Eu579m/A$857m) three year floating rate note that met with strong demand and highlights the amount of liquidity in the sterling market, said a syndicate official at one of the leads.

National Australia Bank, Victor Harbor

The deal is the first sterling covered bond since early May, when Deutsche Pfandbriefbank sold a £200m three year FRN, and the issuer’s first since the end of August 2012, when it sold a £250m 14 year fixed rate issue, at 120bp over Gilts.

Leads NAB, RBC and RBS went out with guidance of the 30bp over three month sterling Libor area for today’s issue for NAB, and will price the FRN at 30bp over after having gathered more than £550m of orders. This included demand from bank treasuries associated with the leads, said a syndicate official on the deal – a banker away from the leads had queried this.

The lead syndicate official that the main comparables included NAB January 2015s, bid at around 17bp over, and ANZ February 2016s, at around 24bp over. These and the curve differential imply fair value of the high 20s over for a NAB three year, he said, meaning that the issuer paid a minimal new issue premium of some 2bp-3bp.

“It’s a great result,” he said. “The most recent sterling covered bonds for the likes of Munich Hypo, Pbb or even Stadshypotek haven’t achieved that sort of size, and it’s testament to the amount of liquidity that exists in sterling at the moment.”

NAB’s deal is the joint largest sterling covered bond this year, tied with a £500m three year FRN for ANZ Banking Group that came at 27bp over on 24 January.

Syndicate bankers away from the leads spoke approvingly of today’s deal – “a neat trade” and “very respectable size”, said one.

The level was fair, they said, with one seeing a new issue premium of 2bp-5bp. An ANZ issue with a 2.5 year term-to-maturity was around the mid-20s, he said, and the level on NAB’s deal made sense in relation to that.

The sterling covered bond market has been relatively quiet this year, with cheaper funding available via a government Funding for Lending Scheme (FLS) deterring UK issuers from tapping the market.