Santander UK sold the first benchmark covered bond since the UK’s EU membership referendum today (Friday), a £500m three year FRN that bankers said offered no Brexit-related premium, as UK issuers made a “remarkable” return to the markets amid a recovery in sentiment and a rally in Gilts.

Bankers said the wider market was in good shape today, after risk-on sessions and with the FTSE 100 maintaining positive momentum to open up 0.4% this morning – almost 200 points higher than before news emerged of the UK’s vote to leave the EU last Friday.

A rally in Gilts this week also intensified after Bank of England governor Mark Carney hinted at a possible interest rate cut this summer, with two year Gilt yields entering negative territory yesterday and 10 year yields falling below 1%, both for the first time.

“It’s almost as if nothing happened,” said a syndicate official. “Gilts are rallying pretty aggressively, spreads are holding up, liquidity is high and the market is in incredibly good shape.

“The fact that sterling has been reopened and that UK bank funding has resumed both internationally and domestically, all within a week of the vote, is remarkable.”

Lloyds launched the first benchmark issue from a UK financial institution since the vote yesterday (Thursday), a $1bn (Eu900m, £747m) five year senior unsecured HoldCo bond, before Santander followed this morning to launch the first sterling-denominated benchmark.

The £500m (Eu603m) floating rate note, which was sole-led by Santander, was priced at 48bp over three month Libor, in the middle of initial price thoughts.

“It’s a good, sensible trade,” said a syndicate official away from the leads. “Sterling demand for UK banks is probably the most stable place to be, because naturally sterling investors should be fairly comfortable with or at least understand the UK risk.”

Bankers noted the deal had been priced at the same level as the last sterling-denominated benchmark covered bond, a £750m three year FRN for Nationwide Building Society on 13 April.

“Nationwide’s deal was larger, but obviously sold in more stable times, so this is a good result for Santander,” said one.

Seeing Nationwide’s April 2019s and Lloyds’ January 2019s quoted in the low 40s, mid, bankers away from Santander’s leads said the new issue offered around 5bp concession.

“That’s in line with where they would have priced a deal a few weeks ago,” said one. “I don’t think they paid any Brexit or first mover premium of note.”

While UK covered bond spreads widened substantially in the immediate aftermath of Friday’s vote, by between 8bp and 25bp, bankers noted that few trades took place at such levels, and said there had been a retracing through the week.

Bankers added that not too much should be interpreted from the lack of price movement throughout the execution process.

“That’s not unusual for the sterling market,” said one. “We don’t know the book, but given the success of the last sterling covereds and the dynamics in the market you’d assume the deal was covered, and it’s nonetheless a good outcome just to get a trade away today.”

“There’s quite a lot of cash built up in sterling, given the segment has been more or less closed for quite some time, so now it’s just about choosing the right asset class and maturity to tap that demand.”

Bankers said the deal should also have found good demand because sterling covered bonds currently look attractive versus tightening Gilts. Analysts at Citi noted earlier this week that UK sterling covered bonds on average offered a pick-up of around 80bp from Gilts.

Standard & Poor’s and Fitch downgraded the UK sovereign on Monday, meaning that the triple-A rated sterling market became substantially smaller, and analysts and market participants said UK sterling-denominated covered bonds are therefore also an appealing alternative for investors that require triple-A rated sterling paper.

Bankers said that further sterling issuance could follow next week, along with a reopening of the euro covered bond market (see separate article) should conditions remain supportive.

“Issuance – be it covereds, senior, capital, sterling, dollars or euros – is back on the table,” said one. “I see further upside from here.”

Santander UK plc took over as the issuer of Abbey National Treasury Services plc mortgage covered bonds on 1 June, as part of a realignment of the group’s wholesale funding programmes to meet UK ring-fencing requirements.

Abbey’s last sterling-denominated benchmark covered bond was a £500m three year issue in May 2015, while the issuer’s only other benchmark this year was a Eu1bn five year issue in February.