Nationwide launched the first sterling benchmark of the year today (Tuesday), a £1bn 10 year that is the longest Sonia-linked covered bond and, according to a lead, the longest sterling FRN in any asset class since the financial crisis, with bankers hailing the advancement of the sterling market.

The new issue is also the first UK covered bond of the year, as well as the first benchmark covered bond in sterling this year. Deutsche Pfandbriefbank (pbb) launched the last sterling benchmark, a £500m three year Pfandbrief, in September, while the last benchmark UK covered bond was a €500m seven year from Yorkshire Building Society in October.

Nationwide Building Society’s last sterling covered bond, a £1bn five year, was issued in January 2020 and its last benchmark covered bond was a $1bn three year Reg S/144A deal on 5 February, the day after the last UK sterling covered bond, a £1bn seven year from Santander UK.

After this (Tuesday) morning announcing the mandate for a 10 year sterling benchmark-sized FRN, leads Credit Suisse, NatWest, RBC and TD and went out with initial price thoughts of the Sonia plus 45bp area. An initial update reported books over £1bn, and the deal was ultimately priced at 40bp and sized at £1bn (€1.15bn) on the back of £1.6bn of orders.

A lead banker said the 10 year maturity made sense for Nationwide given how UK financial institutions currently have little desire for market funding up to five years due to the Bank of England’s Term Funding Scheme.

“Seven years has therefore been the minimum,” he added, “and the question then is how much are they paying on top of seven year? It’s only a handful of basis points, so I think it makes sense for them to go longer.

“In the end the investor demand was there. We had a massive book – like any other order book of late – and we were really pleased.”

Considering the extension to 10 years, the execution process involved an element of price discovery, according to another lead banker.

“Accounts really bought into the fact that – a little bit like in the European market – in order to meet a minimum spread return, you’re just having to go that little bit longer in terms of duration,” he said.

“The speed of the execution and the breadth of demand was very impressive,” he added. “A £1bn deal at the plus 40bp mark is a really nice re-entry to the UK covered bond arena for Nationwide.”

The new issue was priced around flat to fair value, according to the lead bankers, based on Nationwide January 2025s at 20bp and Santander UK February 2027s at 31bp.

“There was no additional new issue premium required even though this is an innovative product,” added one, “so a really great result all round.”

Bankers at and away from the leads said the pricing was broadly comparable with where the issuer might print in the euro market.

“It’s nice for UK issuers to have the option of sterling as an alternative,” he said, “and nice that the sterling market demonstrates – as it has done for many years in fixed rate format – a bid for slightly longer duration assets.”

A syndicate banker away from the leads said he was surprised the issuer had approached the market given the attractions of alternative funding sources.

“They don’t have a huge amount of volume to do,” he said, “and on that basis I thought they would be a bit more cost focused and obviously if you’re going longer, you’re paying curve.”

But he said the trade was an impressive one for Nationwide to have achieved.

“All in all, both the execution and demand were good,” he added. “It’s a perfectly reasonable trade and it shows you how far the UK is in its advancing towards its Libor transition versus the rest of the world.”