Yorkshire Building Society is set to launch a EUR500m no-grow five year covered bond tomorrow (Tuesday), in only the second UK euro benchmark of the year. The deal will also round off the quietest month of the year for issuance, with the tempo expected to remain unhurried.

Yorkshire has mandated Danske, HSBC, Natixis and UniCredit for what will be its first euro benchmark since a EUR500m (£432m) six year in April 2017. The UK issuer’s last benchmark overall was a £500m five year Sonia-linked FRN debut in November last year.

That was one of a string of UK FRN covered bonds in their domestic market, but amid the ups and downs of Brexit negotiations, the only UK euro benchmark so far this year has been a EUR1.5bn five year for Lloyds on 18 March. However, that drew EUR4.7bn of demand, and market participants expect Yorkshire’s new issue to go well tomorrow, particularly with any Brexit date having been delayed until potentially October.

The last four euro benchmarks to have been launched across the past three weeks have all been very long-dated trades, of 15 or 20 years, offering less low yields and less low spreads for core names, while the last shorter new issue was a zero coupon five year for TD on 3 April. A syndicate banker away from Yorkshire’s leads suggested it was an appropriate name to bring in the shorter end of the curve.

“Five years should be open to them given that they pay a bit of spread,” he said. “Yield-wise, five years is miserable, so you need to put something on there to offer at least something like a coupon, and a five year from the UK is just the right trade.

“I don’t think Brexit will be a concern to anyone,” he added, “so I would presume they will swiftly get this executed.”

Yorkshire’s outstanding November 2022s were quoted on an i-spread basis at 8bp, mid, pre-announcement, and its April 2023s at 9.5bp, according to pre-announcement comparables circulated by the leads. Lloyds’ March 2024s, issued last month at 18bp over, were quoted at 11bp.

Unless any other euro benchmarks emerge tomorrow, Yorkshire’s trade will bring April supply to just EUR7.75bn, the slowest month this year after a bumper first quarter. According to figures from ABN Amro senior fixed income strategist Joost Beaumont, ahead of Yorkshire’s deal euro benchmark issuance is just 7% up on the first four months of last year, whereas at the end of March it was 30% ahead.

European public holidays this Wednesday (1 May), and Monday and Wednesday of next week are among several that could disrupt supply over the course of the coming month. And many banks continue to take advantage of the accommodating markets to focus on subordinated/bail-in-able trades, with issuers such as CIBC, LBBW and Rabobank among those hitting the market today and more mandated.

“Looking forward, we expect that a modest deal flow will continue on the back of favourable market conditions,” said Beaumont. “Furthermore, holidays and black-out periods might limit new issuance in the near term.

“Meanwhile, the strong supply so far this year will probably be another dampening factor, while banks might favour issuance of riskier ranks of bank debt, as new issue conditions have been very good in these markets as well. Finally, overall redemptions will be small in May, as EUR4bn of covered bond benchmarks will mature next month.”