Royal Bank of Canada printed the first five year Sonia-linked sterling covered bond from a non-domestic issuer yesterday (Thursday), attracting £1.25bn of orders to a £1bn transaction that is RBC’s first risk-free rate-linked benchmark. CRH’s comeback euro benchmark is meanwhile set for launch next week.

Leads HSBC, Lloyds, NatWest, RBC and Santander went at 9:00am with guidance of the Sonia plus 60bp area for the benchmark-sized five year sterling FRN, and after just over an hour, reported books over £750m. At 12:15pm, the spread was set at Sonia plus 58bp on the back of orders over £1.25bn, and at 1:10pm, the deal size was set at £1bn (C$1.63bn, EUR1.12bn) with a final book of over £1.2bn.

“It went extremely well,” said syndicate banker at one the leads. “The execution was swift and straightforward.

“It’s testament to the maturity and strength of the sterling Sonia market,” he added, “and limited triple-A Sonia supply over the last few months meant that there was some pent-up demand for such a security.”

The last Sonia-linked covered bond was a £1bn three year FRN from Nationwide Building Society in July, which followed a £1bn three year from Canada’s Toronto-Dominion earlier that month.

The lead banker saw the pricing of Sonia plus 58bp as flat to fair value, taking into account outstanding 2022 paper from TD and ANZ at around plus 45bp.

“A £1.2bn order book was impressive, particularly for the first international issuer to print a five year sterling covered,” he said. “This really demonstrates the potential appeal of the Sonia covered market to other issuers for choice.”

The sterling deal saved the issuer “half a dozen” basis points versus US dollars and was “competitively priced” versus euros, according to the lead banker.

He said the transaction was especially important for RBC because it is its first new risk-free rate transaction globally, with the exception of one year Sonia-linked senior unsecured issuance.

“At present there is a heightened level of demand from sterling investors for non-UK names,” he added, “and we were happy to satisfy some of that demand with this issue.”

Asset managers took 59%, bank treasuries 39%, and central banks and official institutions 2%.

“Typically on UK deals something like three-quarters is taken by banks, “he said, “and the skew of demand to the asset management community reflects the slightly different regulatory treatment for non-UK names.”

The UK was allocated 68%, Europe 28%, and Asia 4%. The lead banker noted that the “healthy level” of non-UK demand came despite the continued uncertainty around Brexit.

“There is still appetite for sterling assets,” he said.

Caisse de Refinancement de l‘Habitat (CRH) is expected to launch its first covered bond since June 2013 early next week, following the conclusion of its European roadshow on Wednesday.

Leads Crédit Agricole, HSBC, LBBW, Natixis and SG said in an update today (Friday) that the French issuer will launch a seven to 10 year euro benchmark as early as next week.

According to indicative comparables circulated by the leads, CRH March 2024 and January 2025 paper was quoted at mid-swaps plus 2.5bp and 1.0bp, mid, respectively, and at 19.5bp and 16.5bp over OATs. French seven to eight year paper from other issuers was seen at around 2bp-2.5bp over mid-swaps and 18bp over OATs, while 2029 comparables were quoted at around 3.5bp-4bp over mid-swaps or 13.5bp-15.5bp over OATs.