Yorkshire Building Society attracted Eu870m of demand for a Eu500m five year covered bond yesterday (Thursday) as interest in longer dated issuance disappointed, and an official at the issuer said investors had made clear their preference for shorter dated deals during premarketing.

Yorkshire’s new issue came at the same time as a Eu500m seven year issue from SCBC, and followed a Eu1bn seven year from RBC on Wednesday, with the level of demand for both deals deemed underwhelming by syndicate bankers at the same time that pricing was in line with initial price thoughts.

Chris Parrish, head of treasury at Yorkshire Building Society, said that the deal’s five year maturity was one of the main reasons it was better received in the volatile market, after investors had made clear their preference for shorter tenors in meetings earlier this week.

“We planned this transaction before the volatility hit, so had a choice to make,” he said. “My view was that we should press ahead with the roadshow and engage with investors and see how they feel, and that we wouldn’t necessarily have to do a trade on the back of it.”

The issuer held a short roadshow on Monday and Tuesday, with one team meeting with investors in Amsterdam and Munich and another visiting Frankfurt and holding a conference call with French investors.

“It was very useful,” Parrish said. “We got very clear indications from most investors that a shorter maturity would be favoured – that they’d like a three or five year, but that a seven or even 10 year deal was not where their interests lie at the moment.”

Parrish noted that Yorkshire had no maturities in 2020, so opted for the five year tenor.

He added that the issuer’s expectations in terms of pricing levels changed marginally over the week, after the latest period of rates volatility saw the 10 year Bund yield break 1%, but he said the deal had gone extremely well considering the backdrop.

Skipping an IPTs stage, leads Danske, HSBC, Natixis and UniCredit opened books with guidance of the 6bp over mid-swaps area, gathering over Eu500m of orders in under an hour before final guidance was set at the 5bp area, plus or minus 1bp, with orders in excess of Eu850m, pre-reconciliation. The final order book was Eu870m with 47 accounts participating.

“Clearly markets were still a little bit uncertain, but having a good dialogue with investors gave us the confidence to push ahead,” said Parrish. “We could have waited, but I wasn’t confident that things would look any better next week or the week after.

“In the end this proved as successful as we hoped it would be.”

In particular, Parrish cited the quality of the order book as a positive result, noting a high proportion of allocations to central banks and official institutions and to accounts outside the UK.

Fund managers took 43% of the deal, central banks and official institutions 28%, banks 19%, corporates 6%, and insurance companies and pension funds 4%. Accounts from Germany and Austria were allocated 39%, the Nordics 25%, the Benelux 15%, Asia 9%, the UK and Ireland 8%, and elsewhere 4%.

The deal may also have been boosted by an upgrade of the issuer’s covered bond ratings by Moody’s on Friday of last week (5 June), from Aa1 to Aaa, said Parrish. The programme had been on review for upgrade, pending a review based on the implementation of Moody’s new methodology.

“It was fortuitous that it happened when it did, from our perspective,” he said. “We expected the upgrade, based on our reading of the new rating methodology, but you can never second guess the timing of these things.

“It turned out to be ideal.”

Parrish said that Yorkshire is unlikely to return to the covered bond market this year, stating that the issuer’s funding strategy is to target one benchmark in the senior unsecured, covered bond, and RMBS markets per year.

After launching a senior deal in March, Yorkshire would now look into the potential to issue an RMBS after the summer break, Parrish said.

“We’re not a frequent issuer, as we’re too small for that,” he added, “but we want to position ourselves as a regular issuer.”