Santander UK priced a £1bn five year Sonia-linked trade today (Friday) at a tighter level and on the back of more demand than a similar Nationwide deal at the beginning of January, as the sterling market benefited from the dynamics keeping the broader covered bond market buoyant.

Leads HSBC, Lloyds, NatWest, RBC, Santander and TD went out with guidance of the Sonia plus 75bp area for the sterling benchmark five year trade. Books were above £1bn, excluding JLM interest, after around an hour and a quarter, and after almost two hours the spread was set at 73bp on the back of books above £1.4bn, including £25m JLM interest. The books close at over £1.5bn and the size was set at £1bn (EUR1.14bn).

In what was the first UK financial institution bond issue of the year, Nationwide Building Society priced a £1bn five year at 75bp on the back of a book that peaked at £1.2bn on 3 January. A syndicate banker at one of Santander UK’s leads noted that the issuer had achieved a tighter level and more demand.

“We are back to the highs of Sonia order books that we have seen,” he added. “The transaction extends Santander UK’s newly-built Sonia curve and issuers being able to successfully introduce multiple lines demonstrates a degree of maturity in this market.”

The deal is Santander UK’s second Sonia-linked covered bond, following a £1bn three year in September 2018 that was only the second Sonia-linked covered bond.

The lead banker said the improved result achieved by Santander UK also showed the sterling market to be benefiting from the trends that have seen euro covered bonds being priced at tighter levels on the back of big order books.

“And there is still healthy appetite for the UK banking sector within sterling,” he added.

According to his calculations, the pricing was equivalent to 20bp-21bp over mid-swaps in euros. He said that the sterling trade offered a saving versus a comparably sized deal in euros, with Santander UK euro 2024s quoted at around 20bp, mid, and UK names – unlike some others – probably being required to pay a new issue premium.