Nationwide Building Society sold the first seven year floating rate benchmark sterling covered bond in almost two years today (Tuesday), a £750m deal that attracted over £1bn of demand and provided the UK financial institution with competitive longer dated funding.

The last seven year floating rate sterling covered bond was a £400m deal for Commonwealth Bank of Australia on 20 October 2021.

The new issue maintains Nationwide’s track record of pioneering longer maturities, with it having in January 2021 issued the first 10 year Sonia-linked covered bond, a £1bn deal, and extended the UK curve in euros with a €500m 20 year in April 2021, for example.

In June, Nationwide issued a £750m five year Sonia-linked covered bond – which was the tightest FRN in the maturity this year – and a syndicate banker at one of the new issue’s leads said this contributed to the building society looking at a longer maturity.

“There’s been a fair bit of supply in five years,” he said. “We did discuss various options with Nationwide, including something slightly shorter, as it’s fair to say that the broadest, deepest demand is probably still in five years.

“But they’d already issued in that tenor. And seven years or longer hasn’t been easy in any currency this year, so if there is the opportunity to go longer, you should probably take it.”

Leads Barclays, BMO, HSBC, Lloyds and NatWest opened books with initial guidance of the Sonia plus 70bp area for the October 2030 sterling benchmark, expected ratings triple-A. The size and spread were set at £750m (€867m) and Sonia plus 67bp simultaneously, with demand coming in above £1bn.

“They took the clinical decision to set the size and spread in one go, which made life pretty straightforward for everyone,” said the lead banker. “We achieved very solid oversubscription and a comfortable 3bp move.”

The 70bp area starting point was chosen to encompass the broadest range of investor interest, according to the lead banker, with the lack of comparable supply meant that calculating a fair value for the seven year FRN was something of a moot point. Nationwide’s old 10 year, 2031 paper was seen at around 66.5bp, mid, but illiquid and “stale”, he said, negating any implications for what the new issue premium might have been. Its June 2028 paper sold in June was quoted at 48bp, mid, tighter than other UK five year paper seen at 50bp or in the low 50s, he added. The pricing was meanwhile inside what might have been achieved in euros.

“Across the curve, sterling is the cheapest to deliver for UK covered bond issuers,” said the lead banker, “as well as being best placed to offer the extension opportunity.”

Despite some real money and official institution orders coming in, demand was skewed towards bank treasuries.

“Nationwide has a history of extending duration and this is just one of a series of quite outstanding trades from them,” said the lead banker. “That’s a testament to its best in class name and the following it enjoys, which means it’s one of the issuers who can test longer duration transactions.”