Nationwide attracted around Eu2bn of orders for a Eu1.25bn short five year covered bond today (Thursday) and bankers said strong demand for the appropriately priced issue suggests Brexit fears are not yet having a major impact on the UK market. RBC is meanwhile pricing a three year sterling FRN.

The new issues from Nationwide Building Society and Royal Bank of Canada are the first UK and sterling benchmark covered bonds, respectively, since UK prime minister David Cameron on Saturday announced a date for a referendum on the country’s membership of the EU, 23 June.

Syndicate officials noted that UK banks’ senior spreads have widened around 10bp since Monday, driven by uncertainty over the risks related to a possible UK exit from the EU, although UK and sterling covered bond spreads were said to have remained stable.

Nationwide leads BNP Paribas, Crédit Agricole, LBBW and UBS launched the January 2021 issue with guidance of the 25bp over mid-swaps area, before revising guidance to the 22bp area after having taken over Eu1.75bn of orders. The deal was then re-offered at 21bp and the size set at Eu1.25bn (£986m) on the back of around Eu2bn of demand.

“This deal looks good,” said a syndicate official away from the leads. “It is the right maturity, and at this kind of spread level the market should have no problem supporting a UK issuer at the moment.”

Another syndicate official agreed.

“Maybe they played it a little safe, as it’s clear that a five year Nationwide deal with this kind of premium should not be a challenging exercise,” he added. “But that makes sense with the slight Brexit pressure on UK names.”

Syndicate officials said the deal offered a new issue premium of around 6bp, seeing Nationwide July 2020s at 12bp, mid, and October 2021s at 18bp. They also cited Lloyds January 2021s at 17bp, mid.

Some syndicate officials said the level of demand for the new issue suggested that Brexit fears are not yet having a substantial impact on the UK covered bond market, noting that UK covered bond spreads have remained stable this week.

“Speaking to investors, there are different camps, but it seems most people are either positioned for it already or see it as something to think about nearer the time rather than trading out of risk right now,” said a syndicate official. “And clearly, it’s not had an impact today in covereds.

“With Nationwide taking around Eu2bn orders and tightening the spread to 21bp, this looks good.”

Another syndicate official said it seemed many investors are still getting to grips with how an EU exit would affect UK banks.

“Obviously it would be of more importance to UK issuer’s capital and senior spreads than covered bond spreads,” he added. “If investors like the collateral, which I think many still do for the UK, then they will have less hesitation in buying this sort of product.

“At this juncture, a deal like Nationwide’s will do fine. Whether that will be the case in the coming weeks is hard to say.”

The syndicate official suggested that if the pound continues to fall, this would have spillover effects on equities and subsequently on credit spreads.

“Maybe UK issuers will therefore eventually have to be less ambitious in bringing covered bond transactions,” he said. “This is a product where there is almost always a price where you can get an execution, but maybe UK issuers will have to be more cautious.

“But for now, I think this deal for Nationwide has come at more or less the same level it would have before the referendum was called.”

Another syndicate official suggested, however, that Nationwide paid up slightly to compensate for investors’ concerns over the referendum.

“I think if it were not for the Brexit discussion then Nationwide would have been able to price this deal at 19bp or so,” he said. “There was a political aspect to this price – but not much.”

RBC leads HSBC, Lloyds and RBC priced the Canadian issuer’s three year deal at 50bp over mid-swaps, in the middle of IPTs and guidance, on the back of books around £300m. The deal size was then fixed at £350m (Eu444m, C$674m).

Syndicate officials noted that most recent sterling deals had also priced in line with guidance.

“In sterling it’s not a question of price as much as the size you can get out of the market,” said one. “The sterling market offers attractive funding compared to global levels right now, so for RBC it makes sense to take what they can get out of the market, and the spread probably isn’t the priority.”

Syndicate officials noted that the deal had been priced in line with the last sterling issue, a £500m three year for Australia’s ANZ that was priced at 50bp on 4 February, and close to a £400m three year for fellow Canadian Toronto-Dominion that was priced at 48bp on 27 January.