Yorkshire Building Society successfully issued its second Sonia-linked covered bond today (Thursday), attracting a final order book of over £1.5bn to its £750m five year floating rate note and tightening pricing by 7bp, showing the UK market to be open ahead of the general election and year-end.

YBS’s first Sonia-linked trade was a £500m five year in November 2018, which was its first sterling covered bond since 2012. Its latest FRN follows a £1bn five year Sonia-linked covered bond for Santander UK last week that was more than twice subscribed.

After announcing the mandate yesterday (Wednesday), leads Barclays, BNP Paribas, Lloyds and UBS this morning went out with guidance of the Sonia plus 65bp area, matching the pricing strategy of Santander UK’s trade. Books peaked at over £1.9bn and the deal size was set at £750m (€875m), with pricing ultimately set at Sonia plus 58bp on the back of a final book of over £1.5bn.

A syndicate banker at one the leads said that the deal had exceeded the issuer’s expectations.

“The big move from IPTs to final pricing shows you how strong this deal is,” he said. “Books peaked at over £1.9bn and only went down to £1.5bn at final, still twice oversubscribed, at a price which is definitely not bad.”

He put fair value for the trade at around Sonia plus 58bp-60bp based on Santander UK’s 2024 paper last trading at 58bp.

“Santander proved the market is there and that people have liquidity ahead of year end,” he added. “Indeed, there were conversations regarding whether Yorkshire should bring the deal forward or wait until next year, and clearly we made the right move.”

A syndicate banker away from the leads said that YBS had chosen an optimal time to execute the trade as it did not have to compete against many triple-A names who will likely be more active in the new year.

“Coming this side of the year-end was good,” he said, “also benefitting from there being something of an eye of the storm surrounding UK risk at the moment. Many UK issuers are printing in a variety of asset classes, with a view to getting things done before things could get more uncertain after the election.”

He saw fair value for the trade as flat to where Santander UK issued, at 60bp, and said tightening by 7bp to 58bp was particularly impressive, representing one the largest recent moves in covered bonds generally and especially within the Sonia-linked sterling space.

“This is testament to the appetite investors have for the credit,” he said. “If you want exposure to the name and have lines available, this is your opportunity to put the cash to work in a significant size.”

He said that although the issuer likely gained confidence following Santander UK’s deal last week, it issued at a similar time in 2018, indicating that it was well placed in their corporate calendar as a good time for them to issue in their own right.

“At the end of the day, it’s a good sign that the Sonia sterling market is open for business,” he added, “and I’m sure that the size of the order book and the relative ease of execution will serve to encourage others to look at this market as well.”