Yorkshire Building Society today (Tuesday) attracted more than €3bn of orders to the first benchmark UK covered bond since February, with the attractions of the €500m no-grow seven year outweighing any Brexit concerns, allowing the issuer to achieve pricing flat to inside fair value.

After announcing the mandate yesterday (Monday) morning, leads Danske, HSBC, Natixis and UniCredit this morning went out with guidance of the mid-swaps plus 28bp area for the €500m October 2027 issue. Orders surpassed €1bn in around 40 minutes, and after an hour and a half guidance was revised to the 24bp area on the back of books above €2.2bn. By the time books closed after two hours, demand was above €3bn, pre-reconciliation, and the spread was fixed at 22bp.

“Clearly the evolution of the trade speaks for itself,” said a lead banker, who noted that as many as 100 accounts were involved in the new issue.

A syndicate banker away from the leads described the response as “mad”, comparing the deal’s success to Yorkshire’s last euro benchmark, a €500m no-grow five year in April 2019 that attracted some €3.5bn of demand.

“The need or desperation of investors is tangible in each and every trade,” he added. “They don’t know when the next one will come.”

The deal is only the second euro benchmark since 17 September and overall supply expectations remain depressed. UK supply has been even more thin on the ground, with today’s new issue being the first UK euro benchmark since January and first UK benchmark in any currency since 5 February.

The lead banker said the deal’s reception was testimony to the dearth of supply, but also the 22bp spread available.

“Many covered bond investors see it as having value,” he added.

He noted that although some Brexit fallout is expected – with UK covered bonds’ risk weighting rising, for example – UK issuance offers a pick-up over Canadian and Norwegian paper.

Asset managers were particularly notable in the book, according to the lead banker, with the pick-up compensating somewhat for the continued low yields of the asset class – Yorkshire’s bond yielded minus 0.13% at re-offer. He said LCR buyers were split into two camps, with some banks having line restrictions on UK names, but others joining in the demand for the trade.

Syndicate bankers at and away from the leads agreed that given the lack of UK supply and Yorkshire’s longest outstanding being last year’s May 2024 issue, calculating fair value was not straightforward, but put it at around mid-swaps plus 23bp, implying as much as 1bp of negative new issue premium.

Ahead of the new issue, bankers remarked on Yorkshire’s good standing in the euro market, and this was again cited in the success of today’s deal. The lead banker said investors appreciated the issuer’s commitment to the euro market, even coming with a benchmark in today’s circumstances when its peers have been absent.

He noted that as well as reflecting Yorkshire’s commitment to the euro market, the new issue enabled it to achieve relatively long duration funding and furthermore longer dated issuance than is typically available in sterling covered bonds.

My Money Bank SCF (MMB SCF) is expected with a €500m no-grow 10 year issue tomorrow (Wednesday) and Sumitomo Mitsui Trust Bank (SMTB) with a seven year euro benchmark in the next couple of days.