Bank of Nova Scotia issued the largest sterling covered bond since 2014 today (Monday), a £1.3bn [corrected from £1.35bn] five year FRN that a lead banker said offered an attractive alternative to euros. TSB is due to follow in Sonia-linked format tomorrow, with its first covered bond in two years.

Following a mandate announcement at the end of last week, leads Credit Suisse, Nomura, Santander and Scotiabank this morning went out with initial guidance of Sonia plus 32bp. After an initial update putting books above £1bn, the spread was subsequently fixed at 28bp on the back of books above £1.5bn. The size was ultimately set at £1.3bn (€1.51bn, C$2.23bn) on the back of a £1.45bn order book.

At €1.51bn-equivalent, the sterling issue is the largest syndicated single-tranche benchmark covered bond in any currency so far this year, and its £1.3bn size the biggest in sterling covered bonds since a £1.5bn Barclays trade in 2014. It is also the largest sterling covered bond from a non-UK issuer and largest Sonia-linked covered bond.

A lead syndicate banker said the new issue was an “awesome” result for the Canadian issuer, noting it eclipsed a £1.25bn deal for Royal Bank of Canada that was the previous largest non-UK sterling deal and largest Sonia-linked issue.

The sterling landmark came on a day when the euro covered bond market was quiet, and the clear success of Bank of Nova Scotia’s deal contrasted with the mixed results of three euro benchmarks last week. The lead banker said the sterling offered the Canadian issuer a saving of some 4bp-5bp against what it might achieve in the “weak” euro market.

“It was a really good way for them to access the covered bond market in size,” he said, “getting a lot better execution than in euros.”

The margin of 28bp is the second lowest on any Sonia covered bond issued since the reference rate came into use in 2018, bettered only by a shorter dated, £500m three year FRN from Deutsche Pfandbriefbank launched in April.

The new issue is only the fourth benchmark in sterling this year, but TSB Bank is expected to follow tomorrow (Tuesday), having mandated Banco Sabadell, HSBC, Lloyds and NatWest for a sterling seven year Sonia-linked floating rate covered bond, subject to market conditions.

The deal will be only the third benchmark covered bond from TSB, its last having been in 2019, and only the second sterling benchmark covered bond from a UK issuer this year, after Nationwide sold a £1bn 10 year FRN in February.