Yorkshire Building Society launched only the third UK euro benchmark covered bond of the year today, a €500m seven year debut social covered bond, and was able to price the transaction roughly flat to fair value after demand peaked around €1.45bn.

Following a mandate announcement yesterday (Monday), Yorkshire Building Society (YBS) leads Danske, HSBC, LBBW, Natixis and Nomura this morning went out with initial guidance of the mid-swaps plus 14bp area for the €500m (£428m) no-grow seven year social covered bond, expected ratings triple-A. After an hour and 40 minutes, they reported books above €1bn, including €155m in joint lead manager interest. After three hours and 10 minutes, guidance was revised to plus 10bp+/-1bp, will price in range, on the back of books above €1.45bn. The spread was ultimately fixed at plus 9bp and the final books was around €1.3bn, including €155m in JLM interest.

A lead syndicate banker said the trade went very strongly, citing the lack of UK supply and the rarity of it being a social covered bond as factors in its success. Only two previous UK euro benchmark covered bonds have been issued this year, a €500m 20 year from Nationwide Building Society in April and a €750m seven year for Coventry Building Society in July.

“It was clear from the outset when we opened books early this morning that there was quite a good interest,” added the lead banker. “We never know exactly how much of that interest will come into the books, but this time around, it was relatively quick.”

A banker away from the leads agreed the transaction “ticked all the boxes”.

“They made a 5bp move, which is rather at the aggressive end,” he added, “but other than that, it seems rock solid.”

According to pre-announcement comparables circulated by the leads yesterday, YBS May 2024s were quoted at 6bp, mid, and its October 2027s at 8bp. The lead banker put fair value for the new seven year issue in the context of 8bp-9bp, but said that a degree of price discovery was involved.

“We didn’t have 100% clarity about exactly where the queue would be for investors,” he said. “Hence the ever so slightly cautious way of going into the market – unlike a German Pfandbrief where everybody knows exactly where they price, who knows exactly where to pinpoint the price for a UK building society with a social?”

The revised guidance of 10bp+/-1bp gave investors clarity, added the lead banker, while allowing for the 9bp level to be tested on the back of a book of close to €1.5bn.

“So a very strong book, with good quality accounts and widespread distribution,” he said, “therefore it was definitely a plus 9bp trade for the issuer on the day.”

The lead banker noted that although some investors no longer buy UK covered bonds after Brexit, many others are happy to, while ESG accounts bolstered demand.