Abbey priced a £750m (Eu902m) three year floating rate covered bond yesterday (Monday) in its third visit to the benchmark FIG flow markets since November, with an official at the issuer welcoming the strong state of the sterling market and its real money sponsorship.

Santander offices, London

Leads BNP Paribas, Lloyds, RBS and Santander gathered around £1bn of orders for the Regulated Covered Bond and priced it at 35bp over three month Libor, the tight end of guidance of the 37bp over area and initial price thoughts of the high 30s over.

The deal was capped at £750m from the outset and is trading slightly tighter, at 34bp/31bp over, according to a syndicate banker on the deal.

The deal came after Abbey National Treasury Services in November reopened the euro benchmark covered bond market for UK issuers after more than one-and-a-half-years without supply, selling a Eu1bn seven year deal, and then last Tuesday (7 January) tapped the euro senior unsecured market for Eu1bn of five year funding.

“When we did the November deal we said we could come back to primary, and the sterling market is clearly in great shape following the Lloyds success,” said Tom Ranger, head of funding at Santander UK, the issuer’s parent. “We thought it offered the best value for us to issue and if you look at our last three deals we have a very nice curve of funding from an ALM standpoint.”

Lloyds Bank priced a £1bn three year floating rate covered bond last Tuesday, which was the first sterling covered bond from a UK bank since June 2012. It was re-offered at 30bp over three month Libor on the back of some £1.6bn of orders.

“The sterling market seems to have started the year very strongly and it will be interesting to see how it develops and which issuers look to it,” said Ranger.

A lead syndicate official said there is no pipeline in sterling covered bonds at the moment, and that the basis swap has deteriorated somewhat to make the currency a bit less attractive.

Before yesterday’s transaction Abbey’s last sterling covered bond had been a £1.5bn dual tranche issue in February 2012, split into a £750m three year FRN and a £750m 17 year fixed rate issue.

Ranger said that the investor base today is similar to that of around the time of the issuer’s last visit to the sterling benchmark covered bond market, but that real money demand is arguably stronger given the advent of liquidity coverage ratio (LCR) requirements.

“The real money sponsorship is fantastic,” he said. “With the LCR on the horizon more than it was two years ago there is real appetite from bank treasuries.”

Banks and building societies took 48%, asset managers 44%, insurance companies 7%, and others 1%.

UK accounts were allocated 80%, Scandinavian 13%, Germany and Austria 4%, and others 3%.