Lloyds Bank today (Thursday) printed the largest Sonia-linked covered bond yet, a £1.25bn five year deal that came after a heavily oversubscribed £500m four year debut in the sector from Barclays yesterday that had already performed strongly.

Leads Barclays, Lloyds, RBC and TD went out with initial guidance of the Sonia plus 62bp area for Lloyds’ new issue at around 8am UK time and reported books above £1.25bn an hour and 10 minutes later. Final terms were set after two hours and 20 minutes, with a £1.25bn (EUR1.45bn) five year deal being priced at Sonia plus 57bp on the back of £2.5bn of demand.

“The resoundingly successful execution of this, the biggest Sonia covered bond to date at a zero new issue concession – and a spread which represents the lowest cost of funds for the issuer – is a great result,” said a lead syndicate banker, “and demonstrates the growth of the Sonia market, of which Lloyds has been at the forefront since bringing the first Sonia note from a commercial bank in September 2018.”

The new issue comes after three year Sonia-linked covered bonds from Lloyds in September 2018 and January 2019. The banker said the five year deal was a natural extension of Lloyds’ Sonia curve, after the previous “short and simple” trades, following a similar pattern to compatriot Santander UK.

He said the transaction also demonstrated that the sterling Sonia market could provide “competitive duration as well as competitive pricing” versus the euro market, with the deal – at a level equivalent to around 10bp over mid-swaps in euros – coming roughly flat to where the issuer would be able to launch a euro benchmark. When Yorkshire Building Society sold a EUR500m no-grow five year deal at 15bp over mid-swaps on Tuesday of last week (30 April), a EUR1.5bn five year Lloyds deal issued in mid-March was quoted at 11bp, mid.

UK accounts were allocated 88% of today’s issue, the rest of Europe 11%, and other regions 1%. Banks and private banks took 74%, asset managers 21%, and central banks and official institutions 5%.

The lead banker said the speed of execution was a further sign of the maturing of the Sonia-linked segment.

The noted that Lloyds’ deal was launched “in the slipstream” of a £500m four year covered bond from Barclays yesterday (Wednesday) that attracted some £2.7bn of demand.

Leads ABN Amro, Barclays, Commerzbank, RBC, Santander and TD had gone out with price talk of the 55bp area before pricing the deal at 48bp over, and it had already tightened 4bp by today, according to Lloyds’ lead banker.

“We benefited a bit from Barclays and in particular its level of oversubscription, as there were lots of unsatisfied investors in terms of the allocations they got,” he said. “And you’d be kind of mad not to buy the next one that comes along after that kind of performance.”