Coventry Building Society took over Eu900m of orders for a Eu500m seven year covered bond today (Thursday) that is the first post-Brexit euro benchmark from the UK, and bankers said the long-awaited deal was an encouraging return, even if UK supply is expected to remain low.

The new issue is the first UK euro-denominated benchmark since the Brexit vote in June, with the last previous having been a Eu500m four year issue for Leeds Building Society in April. Only one benchmark covered bond has been sold out of the UK since the EU referendum – a £500m three year for Santander UK in July, one week after the vote.

Coventry Building Society held a roadshow ahead of a potential euro benchmark issue at the end of November, but held off issuing amid prevailing market volatility in the wake of the US election. The UK issuer finally announced a mandate for a Eu500m (£425m) no-grow seven year deal via Commerzbank, Danske, HSBC and Natixis yesterday (Wednesday) afternoon.

The deal was launched this morning with guidance of the 20bp over mid-swaps area. After around half an hour the leads announced that the books were “very well in excess of” Eu500m. The spread was later fixed at 18bp on the back of over Eu900m of orders.

“Coventry decided to take a second crack at this one today and it’s paid off,” said a syndicate banker away from the leads. “Plus 18bp is a good and attractive level for them and Eu900m is a decent book.”

Seeing Coventry November 2021s trading at 15bp, mid, bankers said that the new issue offered little to no new issue premium.

Some bankers noted that the demand for Coventry’s deal was lower than for the week’s previous euro-denominated supply, and that the execution had been slower to progress.

“Deals have been flying out of the blocks this week, whereas Coventry’s did look a touch slower,” said one. “It’s possible that one factor contributing to that is that some investors still hold concerns about the UK and UK issuer’s paper going into the Brexit discussions.”

However, others were more upbeat on the result.

“I don’t think you can read too much into the books here,” said one. “Coventry Building Society is not a Lloyds, it doesn’t have the same sort of following as one of those bigger names.

“But what is clear is that the orders they received must be very good and high quality, because they have been able to tighten the pricing and essentially price with no premium. I think the one takeaway is that UK issuers can do a deal any day they want.”

However, bankers do not expect substantial volumes of covered bond issuance from UK banks in the coming months because of the attractiveness of the Bank of England’s Term Funding Scheme (TFS), which was announced in August and allows banks to borrow reserves in exchange for eligible collateral until at least 28 February 2018.

“As commendable as Coventry’s deal is, why do a deal when you can access funding via the TFS?” said a syndicate banker. “Coventry had a strategic plan to do a deal and come back to the market to make sure their investors are happy.

“I don’t think it’s an example that many will follow.”

The deal is Coventry’s first euro benchmark covered bond since October 2014, with the issuer’s last benchmark having been a £500m three year FRN in March 2015.