Nationwide launched a Eu1bn 15 year covered bond to capitalise on long end demand and extend its maturity profile yesterday (Thursday), according to an official at the UK issuer, who pointed to the deal’s positive performance when asked about the decision to tighten pricing 10bp during execution.

Nationwide Building Society leads Barclays, Citi, Nomura and Société Générale launched the deal yesterday morning with guidance of the 40bp over mid-swaps area. Guidance was then revised to the 33bp area for an expected size of Eu750m, with books over Eu2.5bn, before the size was set at Eu1bn and the spread at 30bp, with books over Eu3bn.

“The transaction was a successful one that enabled Nationwide to print in size and deliver value to its membership base through a good landing point on pricing,” said an official at Nationwide Building Society.

Some bankers away from the deal questioned the 10bp move from initial guidance to re-offer, however, and suggested investors may also have been disgruntled by the decision to increase the deal’s size from the Eu750m indicated mid-execution.

The Nationwide official noted that the deal was today trading inside re-offer – with some bankers seeing it up to 3bp tighter this morning.

“The transaction’s performance in the secondary markets since issuance demonstrates that there is still strong demand for this bond despite landing at a reduced level from IPTs,” he said.

Syndicate bankers away from the deal said it is unusual for a well-known covered bond issuer with a well-established curve to tighten the spread of a trade by 10bp during execution, but agreed that the performance of the deal showed the deal still offered some premium to investors.

“If you need to tighten a transaction 10bp just to stop demand from running away and enlarging the order book even further, to me it indicates that there has been a very cautious starting point, rather than setting pricing more towards a realistic level at the start,” said one.

“The deal’s success was a bit of a positive surprise to me, but the starting point was very, very generous. Perhaps they wanted to get close to a 1.5% coupon as a teaser, but obviously in the end it delivered a pretty cheap opportunity to investors as well.”

The coupon was ultimately 1.375%.

A syndicate banker at one of Nationwide’s leads said fair value for the new issue was around 28bp, seeing Nationwide’s March 2027s at 15bp, mid, and citing the differentials between 2027 and 2032 paper from issuers that have 15 year benchmarks outstanding.

Some bankers away from the leads put fair value at closer to 25bp, based on Nationwide’s curve.

“Whichever way you look at it, the starting new issue premium was in the double-digits, which for a name like this is a lot,” said a syndicate banker away from the leads. “Given the political situation, you can understand why they wanted to be cautious with a long-dated UK deal, but you can also understand why investors might be unhappy about being offered an unrealistic NIP and ending up with something much less.”

The new issue represented a revival of plans first announced in February, when Nationwide said it was considering issuing a 15 year covered bond as part of a dual-tranche offering, before deciding to print only a Eu1bn seven year covered bond. The Nationwide official said it had returned to the market as it was keen to extend its funding profile and because conditions had improved.

“Nationwide is looking to term out its maturity profile in a year in which much of our funding is four year money from the Term Funding Scheme,” he said. “A 15 year covered bond offered an opportunity to access a market that Nationwide has not issued in since 2014, responding to strong investor demand in this part of the curve.”