A £650m five year FRN for RBC today (Friday) matched or bettered the spreads of recent, smaller UK supply, showing a compression between the countries and proving the market is wide open for international issuers – having saved the issuer “a handful” of basis points versus other currencies.

The Canadian bank’s new issue comes after a late flourish of sterling covered bond issuance in November that saw issuers from the UK, Norway and Germany take advantage of strong demand and attractive funding levels.

“The technical landscape for sterling is very strong at present, with high volumes of redemptions going through the market, and that’s really driving the high levels of cash demand across triple-A sterling products,” said a syndicate banker.

Leads HSBC, Lloyds, RBC and Santander launched the new issue with initial price thoughts of the three month Libor plus 27bp area this morning. Guidance was later set at 23bp-25bp, will price within range, with books above £900m. The spread was ultimately set at 23bp and the size at £650m (Eu738m, C$1.19bn) with books closing at £840m.

Bankers at and away from the leads highlighted that the outcome looked impressive versus two recent £500m five year FRNs from domestic issuers, the first from Santander UK on 9 November and the second an inaugural issue for TSB Bank yesterday (Thursday). Santander UK’s deal was priced at 23bp and seen trading at around 20bp, bid, today, while TSB’s debut was priced at 24bp and seen bid around re-offer.

“The size and spread are an impressive statement of just how open the sterling market is to international issuers,” said the lead syndicate banker. “Historically there has been some differential between UK and Canadian names in sterling, but that has compressed over the course of the last six months, first in the secondary market and now clearly in the primary market.”

The lead syndicate banker added that the level of demand was especially pleasing given that the deal is RBC’s second sterling benchmark of the year, following a £500m short four year fixed rate issue in January.

“There was a good following from a combination of UK asset managers, central banks and official institutions and bank treasuries,” he added.

Bankers noted the book was smaller than those built by Santander UK and TSB – of over £1.3bn and over £1.2bn, respectively – but said this was to be expected for a non-domestic issuer.

The final spread offered no new issue premium, bankers at and away from the leads said, based on the secondary levels of recent five year FRN supply. The lead syndicate banker added that the deal saved the issuer “a handful of basis points” compared with what it would have been able to achieve with an equivalent deal in other currencies.

Bankers suggested that further sterling issuance could follow next week, as the euro market slows down (see separate article). Including RBC’s new issue, benchmark sterling covered bond supply stands at £10.65bn year-to-date, up from £5.95bn in the whole of last year.