Royal Bank of Canada sold the largest sterling covered bond from a non-UK issuer today (Thursday), a £1.25bn five year FRN that attracted over £2.1bn of orders and achieved the tightest pricing yet for a Sonia covered bond in the maturity amid a “scramble” for such paper.

After announcing the mandate this morning, RBC leads HSBC, RBC, Scotiabank and Standard Chartered went out with guidance of the Sonia plus 52bp area for the five year sterling benchmark-sized FRN. With orders over £2.2bn, pricing was set at Sonia plus 47bp and the was subsequently set at £1.25bn (€1.48bn, C$2.14bn) on the back of over £2.1bn of demand.

According to a lead syndicate banker, the transaction is the largest ever sterling covered bond from a non-UK issuer and the equal-largest covered bond from any issuer.

He said that given the issuer had printed a five year Sonia transaction in October (a £1bn deal at plus 58bp), the new issue’s volume demonstrated the growth of investor confidence in sterling assets in the post-UK election period. The new Sonia five year covered bond comes after Nationwide, Leeds and Coventry building societies and Commonwealth Bank of Australia printed such issues between 3 and 9 January inclusive.

“There’s been a real scramble for Sonia covered assets,” he said. “Recently, we’ve seen good supply in triple-A SSA paper and the sterling deals at the start of January clearly boosted investor confidence even further, meaning many were happy to purchase this at a zero new issue concession.”

He said the deal priced around flat to fair value and came 1bp-2bp through the £1bn January 2025 deal CBA sold on 7 January.

“This also shows how comfortable people are with Canadian credit at the moment,” he said.

The order book was extremely price insensitive, according to the lead banker, with minimal drops from the 52bp area starting point to the final pricing at 47bp.

The deal achieved the issuer’s aim of satisfying demand following a £350m December 2025 senior unsecured transaction it sold on Tuesday, he added.

“Some investors asked the issuer to look at doing a Sonia covered rather than that transaction,” he said, “so the issuer was responsive in stepping into the market.”

The lead banker saw the pricing as roughly flat to what might be achievable in euros and some 5bp inside a US dollar issue, and highlighted that it came some 30bp inside the senior unsecured trade.

“All in all it was a very satisfactory transaction,” he said, “demonstrating that international issuers can get a strong reception in the sterling asset class. It will hopefully show a reasonable secondary performance and serve as a good re-racking of the primary level for Sonia covered, whether it’s international or UK issuers.”