Nationwide Building Society completed a multi-currency hat-trick of benchmarks by successfully selling a €1bn five year issue on Monday, with the UK issuer anticipating wider spreads as soon as January and a challenging 2024 overall, according to head of secured funding Krishan Hirani.

The new euro benchmark comes after Nationwide issued a £750m (€860m) seven year floating rate note on 17 October and a $1.5bn (£1.2bn, €1.37bn) three year fixed rate issue on 6 November.

Under a £8bn wholesale funding plan for its current financial year to 4 April 2024, the building society had by October in covered bonds issued a £750m five year FRN in June as well as private placements. It then had in mind at least two covered bond benchmarks before year-end, Nationwide’s Hirani told The CBR, with the market expected to be challenging next year.

“Refinancing of central bank funding will have an impact, particularly in the UK but also across Europe,” he said, “with additional activity expected from not only regular issuers, but also some new entrants who have TFSME to refinance ahead of the repayment window. That could impact us in two ways: increased activity in wholesale secured markets, adding pressure to spreads; or those institutions that do not have access to wholesale markets being more aggressive in retail deposits to raise funding, which could have an impact on overall flow of deposits in the market – ultimately leading to additional funding requirements or pressure on spreads and cost of funding.

“So whichever way you look at it, we think next year has the potential to be challenging. And then on top of that you can have geopolitics, elections, and two wars.”

Nationwide thus monitored key markets for openings.

“It wasn’t a case of carelessly going out and doing as much funding as possible,” said Hirani. “It was a case of, if there is a sensible opportunity, then let’s go now rather than wait given all the headwinds.

“It’s been busy to say the least over the past month,” he added, “but all of the transactions hit the spot in terms of our objectives.”

Nationwide’s £750m October 2030 FRN on 17 October, paying Sonia plus 67bp, was the first benchmark sterling covered bond of seven years or longer in almost two years and attracted over £1bn of orders.

“Sterling is our cheapest to deliver market – it always has been – and we managed to use it to get some duration at a relatively low cost,” said Hirani. “Testing the seven year tenor hadn’t been done in a while, but it absolutely worked.”

The $1.5bn three year deal on 6 November was the UK issuer’s first benchmark dollar covered bond since February 2020, and was priced at 75bp over SOFR mid-swaps following guidance of the 80bp area.

“US dollars is one of our core currencies,” said Hirani, “but it’s just been unfortunate that following our trade early in 2020, TFSME was announced, and it therefore didn’t make sense to be the regular issuer in that market that we had intended to be. So we’re really glad that we were able to re-access this market now, and we expect dollar covereds to be a key part of our funding franchise going forward. It’s a market that offers size possibilities, as well investor diversification, which was evident in the orderbook.”

This week’s euro benchmark is Nationwide’s second of the year, after it in March sold a €1bn five year, the second UK euro benchmark covered bond of 2023, following a €1bn three year reopener from Lloyds in January.

The new issue comes on the back of a clear improvement in euro benchmark execution over the past two weeks.

“If you’d told me two weeks ago that we’d be issuing euros, I would probably have laughed and said, no, not in this market,” said Hirani. “But there has been a late resurgence in investor demand and positive movements in rates which presented this opportunity. Deals that came to market over the last week were well subscribed and have performed since – this gave us the confidence to launch in this window.”

On Monday morning, leads ABN Amro, BBVA, BNP Paribas, Deutsche and UBS opened books with guidance of the mid-swaps plus 45bp area for the euro benchmark-sized November 2028 issue, expected ratings triple-A. Books surpassed €1bn, excluding joint lead manager interest, after around an hour and a half, and after around two-and-a-quarter hours, the spread was fixed at 41bp – offering a new issue premium of around 6bp – and the size set at €1bn on the back of orders above €1.5bn, with the final book good at re-offer above €1.75bn, excluding JLM interest.

“We are very pleased to have been able to take €1bn out from this market at this stage in year, and also with healthy demand, with our book peaking at €1.8bn,” said Hirani, “so there’s a bit of follow-up demand there, which is hopefully encouraging for others.”