Royal Bank of Canada (RBC) followed in the wake of ScotiaBank and CIBC three weeks ago by today (Tuesday) issuing a £1.25bn five year Sonia-linked issue in a similar mould to its compatriots, while MünchenerHyp is set to sell a rare fixed rate sterling covered bond.

RBC entered the market this morning, with leads HSBC, NatWest, RBC, Santander and Standard Chartered opening books with guidance of the Sonia plus 30bp area for the July 2026 sterling benchmark covered bond, with expected Aaa/AAA/AAA ratings (Moody’s/Fitch/DBRS). After two hours and 40 minutes, they set the spread at 28bp on the back of books above £960m, including £25m of joint lead manager interest. The deal was ultimately sized at £1.25bn (€1.46bn, C$2.14bn) on the back of a £1.3bn final order book, including £25m of JLM interest.

The trade follows five year Sonia-linked issues from Bank of Nova Scotia and CIBC on 14 and 16 June, respectively, for £1.3bn and £1.25bn. Those both started with guidance of the 32bp area and landed at 28bp, with books of £1.45bn and £1.5bn.

A banker at one of RBC’s leads said the data points provided by the new issues enabled RBC to start 2bp tighter and hence offer investors greater clarity over where they could expect the deal to be priced. He said this proved to be an effective strategy, with the confirmation of the 28bp re-offer spread triggering further demand.

“The high quality of the investors and buy and hold nature of the bank treasuries, UK real money and official institutions meant the issuer was able to launch a £1.25bn size with confidence,” he added.

Bank treasuries were allocated 35%, asset managers and insurance companies 30%, and central banks and official institutions 5%. The UK took 83%, EMEA 12% and Asia 5%.

The lead banker put the new issue premium at zero, the 28bp level being flat to where the recent supply was bid, and said the new issue was re-offer bid once free to trade.

The sterling trade provided RBC with the lowest cost covered bond funding that was available across different currency markets in size, according to the lead banker.

“Sterling covered bonds continue to represent an attractive and well proven source of funding with significant depth,” he added, “while RBC continues to enjoy a strong following and demand from the investor base.”

Münchener Hypothekenbank (MünchenerHyp) is expected in the near future with a December 2024 fixed rate sterling benchmark mortgage Pfandbrief, following a mandate announcement today. Credit Suisse, HSBC and NatWest have the mandate.

The deal will be the first syndicated sterling covered bond benchmark in fixed rate format since Deutsche Pfandbriefbank (pbb) sold a £300m long three year mortgage Pfandbrief in September 2018, with sterling supply since then having been exclusively in floating rate format.