TSB issued its longest covered bond today (Tuesday), a £500m seven year FRN, with CIBC set to make it three deals in three days in sterling tomorrow with a similar five year to BNS yesterday. Euro issuance is meanwhile set to restart with a €500m 10 year for Hypo Noe announced today.

After a mandate announcement yesterday (Monday), TSB leads HSBC, Lloyds, NatWest and TSB parent Sabadell went out with guidance of the Sonia plus 40bp area for the £500m (€582m) no-grow June 2028 covered bond, rated Aaa. After close to two hours, they reported books above £625m, excluding joint lead manager interest, and after around three and a quarter hours launched the £500m deal at Sonia plus 37bp on the back of books above £675m, excluding JLM interest. The final order book was above £625m, excluding JLM interest.

The new issue is only the third covered bond from TSB, following a £500m debut in 2017 and a £750m issue in 2019, both of which were five year floating rate notes, making today’s seven year transaction its longest dated issue.

The covered bond is also only the third benchmark in any currency from the UK so far this year, after Nationwide issued £1bn 10 and €500m 20 year deals in February and April, respectively. Like its compatriot, TSB chose to enter the market despite the availability of attractive alternative funding from central banks, and to extend duration.

“The issuer is very well funded and so doesn’t really need the liquidity,” said a syndicate banker at one of the leads. “It’s more about the issuer’s maturity profile and locking in levels at the historic tights in the covered bond space.”

Another lead banker said the pricing of 37bp put down a good reference point for TSB going forward as UK banks return to more normalised market funding patterns. According to pre-announcement comparables circulated by the leads, the only previous seven year Sonia-linked covered bond, a £1bn February 2027 Santander UK deal issued in February 2020, was bid in the low 30s over mid-swaps, while Nationwide’s 2031 FRN – the only 10 year Sonia benchmark sterling covered bond – was bid at 40bp. The lead banker put the new issue premium at 1bp-2bp.

He noted the absolute low level achieved by TSB, with Santander UK’s deal having been priced at 55bp last year.

“They have crystallised good market levels with this slightly opportunistic but quite strategic trade,” he added, noting that TSB would probably have expected to be a more regular issuer before the pandemic stymied UK covered bond issuance.

TSB’s trade comes after Bank of Nova Scotia yesterday sold the largest sterling covered bond since 2014, a £1.3bn (C$2.23bn) five year FRN.

And CIBC is set to follow its compatriot into the sterling market tomorrow (Wednesday), following a mandate announcement today of a five year Sonia trade via CIBC, HSBC and NatWest. CIBC last accessed the sterling market in March 2020, when it tapped a £500m October 2022 FRN for £125m.

A banker said that there was no clear trigger for the trio of new issues – which double sterling covered bond issuance this year – with spreads having been tight for some time. However, he noted that it is not unusual to see issuers bunched together in tapping into attractive conditions as they seek to gain early-mover advantage, particularly after emerging from blackout periods.

Hypo Noe Landesbank für Niederösterreich und Wien is tomorrow expected to launch the first euro benchmark since last Tuesday (8 June). BayernLB, Crédit Agricole, Erste, LBBW and RBI have the mandate for the €500m no-grow 10 year public sector covered bond.

The transaction will also be the first from Austria since a €500m 20 year for Raiffeisen-Landesbank Steiermark (RLB Steiermark) on 18 May struggled at the start of a correction for the asset class.

“After those shaky days in May, the market is still looking a bit for a new equilibrium,” said a syndicate banker at one of Hypo Noe’s leads. “Investors are more picky and that’s also understandable just a few weeks ahead of the summer holidays.

“As we saw last week, the new issues have needed a bit more NIP.”

According to comparables circulated by the leads, Hypo Noe June 2027s were quoted at plus 3bp, mid, Erste January 2030s and UniCredit Bank Austria June 2030s at plus 1bp, and Bawag PSK May 2031s at plus 2bp. Hypo Noe’s last euro benchmark was a €500m no-grow seven year in May 2020.

The lead banker meanwhile said the 7bp re-offer spread of a €500m 10 year green covered bond from Norway’s Eika Boligkreditt last Tuesday should act as a cap on Hypo Noe’s pricing, with the Austrian’s being CBPP3-eligible.

“I would expect to price inside that,” he said. “We will start around there, and then aim to move towards Hypo Noe’s outstanding 2027s and see how far we can get.”

RLB Steiermark’s 20 year trade widened from its 7bp re-offer to around 9bp-10bp over and settled around there, according to a banker involved in that new issue, although he said there was little trading in the paper and that it could tighten in over the summer months.