Leeds Building Society launched the second benchmark covered bond of the year today (Monday), a £600m five year transaction that attracted over £2.3bn of demand to price 1bp tighter than a larger Nationwide reopener in the same format on Friday.

Announcing Leeds’ mandate this morning, leads HSBC, NatWest, Nomura and TD went out with guidance of the Sonia plus 60bp area for the five year sterling benchmark covered bond. An initial update reported books in excess of £1.25bn and in a second update after two hours guidance was revised to 55bp+/-1bp, will price in range, on the back of over £2bn of demand, and the size set at an expected £500m. The spread was ultimately set at 54bp and the size at £600m (€703m), on the back of orders over £2.3bn.

Syndicate bankers away from the leads said the deal, in conjunction with Nationwide’s £1bn five year trade that reopened the market on Friday, showed the Sonia market to be fully open for business and more generally, significant investor appetite for UK sterling assets.

“This is a combination of both the post-election UK risk appetite,” said one, “as well as the slightly more technical impact of a large number of cash redemptions during the month of December fueling triple-A asset investor appetite.”

The syndicate banker said Leeds pricing 1bp inside Nationwide was particularly impressive, given the short space of time between the trades.

“Even though it was a slightly smaller size,” he added, “this shows how fast the market can reprice as and when you see successful transactions coming through.”

Another syndicate banker away from the leads said the transaction’s £2.3bn book was particularly impressive, and that it could encourage other UK building societies to take the same route.

“It’s definitely tight and it’s very advantageous when compared with their theoretical outcome in euros after swap,” he added.

A syndicate banker at one of the leads said that the deal had performed exceptionally, representing the tightest ever level for a five year Sonia-linked covered bond.

“It was everything we could have possibly hoped for and more in terms of the outcome we managed to achieve,” he said, “especially in the context of an uneven market backdrop given the tensions in the Middle East.”

He said Leeds was able to price inside Nationwide’s transaction on the back of the reopener’s performance in the secondary market, where it was trading at 53bp when books were opened this morning.

“We were able to provide a basis point of concession from Nationwide’s secondary level, but you do have to factor in the different sizes taken by both issuers as well when comparing levels,” he said. “But regardless, it’s a fantastic result for the issuer.”