Lloyds Bank reopened the euro covered bond market for UK issuers yesterday (Thursday), with a €1bn three year that attracted over €4bn of orders to position the jurisdiction at a tight level, according to a lead banker, and allay any ongoing concerns about LCR issues.

After the mandate was announced on Wednesday, yesterday morning leads ABN Amro, BNP Paribas, LBBW, Lloyds and Natixis opened books with guidance of the mid-swaps plus 30bp area for the January 2026 euro benchmark, expected ratings Aaa/AAA (Moody’s/Fitch). After around just 40 minutes, the leads reported books above €1.5bn, and after around an hour and 40 minutes, the size was set at €1bn (£877m) and guidance revised to 25bp+/-1bp, will price in range, on the back of more than €3bn of demand, excluding joint lead manager interest. The deal was ultimately priced at 24bp with the orders above €4bn, excluding joint lead manager interest, and the final book remained at that level.

The euro benchmark is the first from the UK since a €500m long four year from Coventry Building Society on 13 September. That transaction came just ahead of UK financial turmoil sparked by the “mini-budget” of transient prime minister Liz Truss, and amid uncertainty about the LCR status of UK covered bonds for EU investors. Since then, UK covered bond issuers had focused on sterling.

Lloyds’ success yesterday in euros was therefore deemed a “landmark transaction” by a lead banker.

“This is a massive reopener for UK borrowers,” he said. “The broader picture for the UK has improved and this stress we saw after the research pieces on LCR eligibility doesn’t seem to be an issue anymore.

“It was a blow-out trade,” he added. “It’s already trading far tighter in secondary: the bond was trading today on the ask side around plus 15bp, plus 14bp, and there were some flows at this level already in decent sizes up to €10m. I believe the issuer was happy to pay a bit more spread to get a very solid transaction done – and they could have easily taken out €2bn from this book – and the next one will definitely be richer.”

He said the spread available on UK covered bonds was seen as generally more than compensating for any risks surrounding LCR eligibility. Only a couple of treasury accounts said at the start that they would not participate because of the issue, according to the lead banker, although one ultimately participated.

“And then you have so much demand coming from international banks,” he added.

Banks took 61% of the paper, asset managers 29%, central banks and official institutions 6%, and insurance companies and pension funds 4%. German accounts were allocated 33%, the UK 29%, Benelux 9%, Switzerland 9%, France 8%, Nordics 8%, APAC 2%, other Europe 2%.

Given the lack of UK supply, calculating fair value was not straightforward, said the lead banker. The only other non-EU three year supply this year was a €1.5bn February 2026 issue for National Australia Bank on Tuesday, priced at plus 25bp on the back of some €2.4bn of demand while its January 2026s were seen at around 22bp.

“You could have argued that fair value for Lloyds was definitely below the 20bp area not only taking into account Lloyds’ secondaries,” he said, “while based on those, it could even have been inside 15bp – which is where we have seen them this morning.

“But if you look at the Canadians,” he added, “to me top tier UK issuers should be very much in line with the better Canadian issuers, like RBC, but this time, given the appetite for three years, investors were keen to get these bonds at 24bp and drive them much, much richer.”

Following Lloyds’ success, bankers expect further euro supply from the UK.