A EUR500m no-grow five year covered bond for the UK’s Yorkshire Building Society today (Tuesday) proved a blow-out, being oversubscribed in seven minutes and ultimately attracting some EUR3.5bn of demand from 140 accounts – although a move of 7bp from a “defensive” start raised eyebrows.

The mandate for the new issue was announced yesterday (Monday), with Yorkshire due to its first euro benchmark since April 2017 and only the second UK euro benchmark of the year, after a EUR1.5bn five year for Lloyds on 18 March that drew EUR4.7bn of demand.

Leads Danske, HSBC, Natixis and UniCredit went out with initial guidance of the mid-swaps plus 22bp area for the EUR500m no-grow five year issue this morning. The deal was oversubscribed after seven minutes, according to a lead syndicate banker, and after around half an hour orders passed EUR1.5bn.

After an hour and a quarter guidance was revised to the 17bp area on the back of books above EUR2.5bn, excluding joint lead manager interest. When the books were closed after less than two hours, orders were above EUR3.5bn, excluding JLM interest, pre-reconciliation, with some 140 accounts involved.

“That’s huge for a small UK building society,” said a lead syndicate banker. “Brexit concerns seem to be a bit far away now.”

He put the new issue premium at zero, with others suggesting it was between zero and 2bp, and this was seen as being in line with recent core issuance – even if it might seem strange to consider the UK “core”, noted one.

The double-digit spread for a triple-A, core five year covered bond was highlighted as a key selling point for the deal, being above the prevailing single-digit spreads for comparable paper.

While there was a consensus that 15bp was an appropriate landing point for Yorkshire’s deal, some bankers away from the leads suggested the starting point had been unnecessarily defensive, taking into account how successful Lloyds’ deal had been and how it had tightened, from 18bp to 11bp, mid, after having paid a new issue premium of 3bp-4bp.

“It’s probably safe to say that, post-Lloyds’ reception, it was fairly evident that investor acceptance of UK covered bond risk remains intact,” said one, noting that names such as Santander UK and Nationwide Building Society had rallied in the wake of Lloyds’ success. “So it was a little bit surprising to see them starting off so defensively.

“But don’t get me wrong,” he added, “it’s a fantastic outcome for the issuer.”

The lead syndicate banker acknowledged that there had been discussions about the appropriate starting point for the transaction, but he noted that some accounts were still unable to participate due to the scale of the issuer and Brexit concerns, and also that names such as Coventry, Leeds and Skipton Building Societies were trading in the high teens to 20bp over.

“Yes, versus Lloyds at 11bp, we offered quite a decent pick-up,” he said, “but versus other building societies, less so. We therefore decided that we would allow for some price discovery.”