Yorkshire Building Society (YBS) issued the first five year sterling UK covered bond in two years today (Tuesday), a £500m floating rate social bond that attracted £1.1bn of demand, while CIBC was in the market with the first dollar benchmark of the year, a 144A/Reg S five year deal.

Following a mandate announcement yesterday (Monday), leads Barclays, BNP Paribas, NatWest and UBS this morning opened books with initial guidance of the Sonia plus 30bp area for Yorkshire’s £500m (€599m) no-grow five year Sonia-linked benchmark, expected ratings triple-A. After reporting books above £1bn, the leads set the margin at Sonia plus 27bp, with the final order book some £1.1bn.

The five year sterling covered bond is the first from a UK financial institution since January 2020, and comes after only two sterling covered bonds since February 2020 – £1bn 10 year Nationwide and £500m seven year TSB floaters in February and June 2021, respectively – and a lead syndicate banker said the deal had benefited from the lack of supply.

“It went really well,” he said. It’s consistent with what we’ve been seeing in the covered bond market in sterling and euros – there’s a lot of cash in the system at the start of the year.

“And there hasn’t been really any UK supply, particularly in this part of the curve, for a long time, so there’s a lot of pent-up demand for UK paper in sterling.”

The covered bond is the first in a sustainable format in sterling from a UK financial institution, and the lead banker said the social nature of the issue helped on the margin.

“The covered bond investor base is the same,” he said, “but it helped with some of the order sizes, just given that investors have a natural preference for ESG-linked instruments.”

Given the lack of UK supply in sterling, he said calculating fair value was not straightforward, but put it in the context of 26bp, implying a new issue premium of around 1bp, given that National Australia Bank priced at £1.5bn four year deal at 27bp in the only other sterling trade so far this year last Thursday.

“This is a year longer, and generally speaking, investors value UK collateral more because of its Bank of England eligibility,” he added, “so you would put fair value 1bp or 2bp inside the Australians.”

A syndicate banker away from the leads saw the outcome as a solid result.

“Decent execution at a decent level,” he said, “and good to see a UK name back in the market.”

He added that the new issue had also repriced the market, coming inside February 2027 Santander UK paper issued as a £1bn seven year trade in February 2020.

The banker nevertheless said he had been expecting an even stronger reception and slightly tighter pricing. He suggested that heavy triple-A sterling supply had moderated the outcome, as well as Yorkshire’s deal coming on the same day that a corporate social bond was competing for attention in the sterling market, with Motability issuing a £500m 20 year fixed rate bond.

“Maybe investors feel a little bit spoilt for choice right now,” he said.

UK issuers are expected to be more active in sterling this year, the syndicate banker noted, and he said Canadian Imperial Bank of Commerce (CIBC) approaching the dollar market today was in a similar vein.

“One of the themes for 2022 is the re-emergence of business as usual when it comes to wholesale financing for a variety of jurisdictions where their central bank emergency measures have now been withdrawn,” he said.

“CIBC’s deal further demonstrates that whilst the Canadians have quite a lot to do, they do have a lot of options,” he added.

Leads Bank of America, CIBC, HSBC, TD and UBS went out this morning with initial price thoughts of SOFR mid-swaps plus the 50bp area for CIBC’s five year 144A/Reg S US dollar benchmark. The deal was sized at $2.5bn and priced at plus 48bp as The CBR was going to press.

The last benchmark dollar covered bond was a $1.75bn (€1.54bn, C$2.22bn) five year for Westpac in November, which was the first to be priced with reference to SOFR mid-swaps. CIBC was last in the dollar market in June 2021, with a $2bn five year benchmark.