CIBC capitalised on built-up demand for sterling paper to double in size a £250m (C$419m, Eu292m) May 2019 FRN today (Friday), reopening the deal at a spread inside outstandings and inside a £500m Santander UK issue priced last week, after receiving reverse enquiries.

Canadian Imperial Bank of Commerce’s tap comes after Santander UK last Friday (1 July) launched the first and only new benchmark sterling covered bond since the Brexit vote. After market sentiment improved in the second half of last week, the UK issuer sold a £500m three year floating rate note that was priced at 48bp over three month Libor and quoted at 47bp, bid, this morning.

CIBC leads CIBC, HSBC and RBS reopened the March 2019 FRN this morning for a minimum tap size of £100m with guidance of the 47bp over three month Libor area. The spread was then fixed at 46bp on the back of over £275m of orders, before the size was set at £250m and the book closed in excess of £280m.

The original £250m issue was priced at 52bp on 3 March.

Wojtek Niebrzydowski, vice president, treasury, at CIBC, said the deal was launched in response to name-specific reverse enquiries.

“In the context of this being the second benchmark sterling covered bond since the UK referendum, and the first from a non-UK issuer, this is an especially good result,” Niebrzydowski added.

Bankers at and away from CIBC’s leads added that it was impressive that the deal had been priced inside the level of Santander UK’s new issue, albeit for a smaller size.

“It’s a confirmation that market participants recognise the credit quality of the issuer, the programme, and the sovereign – which given current circumstances in the UK is not surprising,” said Niebrzydowski.

Previous Canadian sterling-denominated benchmarks have tended to be priced wider than those from domestic issuers.

“We are very happy with how this trade went,” said a syndicate official at one of the leads. “Going for a price through Santander’s deal is obviously ambitious, but we were not necessarily targeting a large size.

“Nevertheless, the book built very nicely through the morning, with good real money and bank treasury demand, and to end up with a £500m issue at this spread is a great outcome for CIBC.”

Syndicate officials said the tap had been priced through secondary levels, seeing outstandings quoted at 47bp, mid, pre-announcement.

Niebrzydowski said that the funding level was roughly equivalent to what CIBC would have been able to achieve in the US dollar market.

Bankers noted that there has been strong demand for sterling-denominated covered bonds since the UK’s vote to leave, with supply having been limited in the run-up to the referendum.

“It’s all down to the fundamentals of supply and demand,” said a syndicate official. “There’s not much paper around, while investors have got cash piled up.”

“A lot of people were asset gathering and building up cash inventories prior to the referendum, and obviously you can put a certain amount into Gilts, but as yields have come down investors need alternatives on the credit side.”