Santander UK took advantage of an undersupplied sterling market to attract £1.6bn of orders to a £1bn three year covered bond today (Thursday), and the price and demand was seen as offering a “double endorsement” for UK assets amid the uncertainty of Brexit and a general election.

The new issue is Santander UK’s first benchmark covered bond since a £500m three year floating rate note on 1 July 2016 – just a week after the outcome of the Brexit referendum.

Since the Bank of England launched its Term Funding Scheme (TFS) to support domestic banks in the wake of the vote, UK issuers’ market funding needs have been limited, and there has been only one sterling benchmark from the UK since Santander UK’s last – a £1bn three year FRN for Lloyds Bank on 9 January.

Santander UK leads Credit Suisse, HSBC, NatWest Markets and Santander this morning launched the new three year floating rating note with initial price thoughts of the 30bp over three month Libor area. The spread was later set at 27bp and the size at £1bn (Eu1.18bn) on the back of books in excess of £1.6bn.

A syndicate banker at one of the leads attributed the strong demand for the deal to the lack of sterling supply from the UK.

“It’s an awesome result,” he said.

The deal is the tightest public sterling issue since May 2015, when Santander UK priced a £500m three year FRN at 22bp over three month Libor.

“They got a very good amount, which allowed them to print at a good, and fair, price,” said a banker away from the leads. “It’s a strong statement about the depth of sterling liquidity at present, and it’s a double endorsement of people’s willingness to invest in sterling assets – those assets being UK mortgages from a UK bank – which is good to see in the slightly uncertain times the country is currently going through for various reasons.”

The deal is the first benchmark from the UK since Theresa May’s government called a snap general election on Tuesday of last week (18 April). It also comes after Santander UK announced its results yesterday (Wednesday).

Bankers said the deal offered a new issue premium of around 5bp, seeing Santander UK’s May 2018s at 11bp, bid, and July 2019s at 17bp. They also cited Lloyds January 2020s, which were priced at 32bp in January, at 21bp, bid, pre-announcement.

A banker away from the leads noted that Lloyds’ recent issue had been launched with initial price thoughts of 32bp, just 2bp wider than Santander UK’s new issue.

“That tells you there is a high degree of consistency in levels in this asset class,” he said. “An awful lot has happened to the UK since January, and yet we’re still starting the same trade at around the same place today.

“That underscores that there is a consistent strong bid for these assets, particularly from UK bank treasuries, who you would expect to be the driver of the order book.”

Bankers said the deal offered a saving to Santander UK compared with what the issuer would have been able to achieve with a three year euro benchmark, estimating that the spread of 27bp over Libor was equivalent to around 7bp through euro mid-swaps. They said an equivalent euro issue would probably have been priced around flat to mid-swaps.

Royal Bank of Scotland (RBS) yesterday mandated a roadshow for what would be its first benchmark covered bond since 2012, marketing a euro benchmark seven year and/or three year sterling issue.

“Santander’s result bodes well for the potential RBS sterling tranche,” said a banker away from the two deals. “It perhaps bodes less well for the euro investors, given that RBS might now be able to say ‘look, there’s clearly a strong sterling deal on the table, if you want a sizeable euro tranche you’re going to have to be sharp at the level you want to buy’.”