Lloyds moved on optimism the UK will avoid crashing out of the EU to sell the first euro benchmark from the country in six months today (Monday), a EUR1.5bn five year that attracted EUR4.7bn of demand. A NatWest inaugural Sonia deal meanwhile drew a bumper book, and a Virgin Money debut is due soon.

Before Lloyds’ trade today, UK issuers had not accessed the euro benchmark market since Skipton Building Society sold a EUR500m five year debut on 25 September 2018. with the lack of a Brexit deal and approaching scheduled leave date of 29 March increasing uncertainty and deterring issuance.

However, a series of UK parliamentary votes last week, including a majority of MPs being against a no-deal Brexit, has led to expectations that the UK will not leave the EU without a deal next week but rather seek an extension.

“It felt like after the votes in parliament last week the sentiment in the Street has completely changed,” said a syndicate banker at one of Lloyds’ leads. “All of a sudden we have seen a bit of a rally in UK covered bonds and some good investor interest, and it felt like the Street went from being long UK to being short.

“This change in sentiment was very encouraging, and given that in particular Friday demonstrated an extremely strong market backdrop and this morning Asia opened on a firm footing, we thought it would be the perfect time for testing this trade. We had some good feedback and decided to give it a go.”

Leads Deutsche, ING, LBBW, Lloyds and UBS went out with initial price thoughts of the 23bp over mid-swaps area for the five year euro benchmark. The lead banker said this represented a pick-up of around 9bp over fair value and was designed to be an “attractive headline number”.

This proved to be the case as demand passed EUR1.5bn in the first half hour, and three-quarters of an hour later the price was set at 18bp with books above EUR3.25bn. Demand ultimately reached some EUR4.7bn and the deal was sized at EUR1.5bn (£1.28bn)

Syndicate bankers at and away from the leads put the final new issue premium at 3bp-4bp. One said it was impossible to tell whether Lloyds might have gotten away with a smaller pick-up, even if he might have targeted a slightly tighter spread based on recent benchmarks having paid almost no new issue premiums.

“I have the impression they played it conservatively for obvious reasons,” he said. “It was a very nice trade.”

Another lead banker said the deal was not only reflective of Brexit developments, but also wider market conditions.

“It’s something that Lloyds can be proud of,” he said, “and is a great testament to how strong the whole covered bond market currently strong is. Last week already Credit Agricole Italia and BPI had fantastic execution, and it feels like at the moment everything works.”

National Westminster Bank (NatWest) added to the UK positivity with its first benchmark since the RBS group’s covered bond issuer was rebranded from its parent’s name. It did so with an inaugural Sonia-linked trade, a £750m four year year FRN via NatWest, RBC and TD.

The transaction was priced at Sonia plus 60bp, after initial guidance of the 65bp area, on the back of some £2.25bn of demand good at re-offer. A lead syndicate banker said the order book is the largest yet for any Sonia-linked trade, whether in covered bonds or SSAs.

Sonia-linked sterling covered bond issuance has continued at a steady pace in spite of the months of Brexit machinations, but the lead banker said the encouraging backdrop had, as with Lloyds, provided an appropriate window for NatWest’s dual debut.

“It was a super day all round for the UK,” he added.

He said NatWest’s sterling and Lloyds’ euro trades had come roughly flat to each other, both being attractive to investors, and suggested it made sense for NatWest to debut its rebrand and the Sonia format in sterling, while Lloyds, having been more active in its home market, would be keener to diversify.

Virgin Money should follow with a debut benchmark covered bond shortly, following an announcement today of a sterling Sonia-linked five year deal to follow investor calls and meetings in the next two days. BNP Paribas, HSBC, Lloyds, NatWest and Santander have been mandated.