Skipton Building Society hit a high in demand for its sterling covered bond issuance yesterday (Thursday), attracting a peak £1.4bn-plus and final £1.1bn-plus of orders to a £500m short five year FRN that benefited from a calmer backdrop and recent UK PRA decision.

Following a mandate announcement on Wednesday, leads Barclays, BMO, HSBC, Lloyds and NatWest opened books yesterday morning with initial guidance of the Sonia plus 62bp area for the £500m (€585m) no-grow January 2030 floating rate note, expected ratings Aaa/AAA (Moody’s/Fitch). After around an hour and a quarter, they reported books above £1bn, and after around two-and-a-quarter hours, they set the spread at 57bp on the back of orders in excess of £1.4bn.

Although some orders dropped, the final book of above £1.1bn with around 40 accounts is at the upper end of what Skipton has achieved on its sterling issuance, according to a syndicate banker at one of the leads – for example, it compares with a book above £700m for its last Sonia-linked deal, a £500m no-grow five year issue in October 2023 that was launched in conjunction with a tender for an outstanding FRN.

The Prudential Regulation Authority’s move earlier this month to curtail eligibility of non-UK covered bonds for UK banks’ LCR portfolios contributed to the greater demand for the sterling paper, according to the lead banker.

“There’s a bit more of a predisposition for UK names, even beyond what we had seen previously,” he said. “There was obviously decent representation of UK treasuries supporting the deal, further motivated by a potential lack of capacity to own international bonds.

Skipton’s more regular presence in the sterling covered bond market was cited as an additional factor in the deal’s reception. Having issued its debut covered bond in sterling in 2018 and followed this up domestically the next year, it did not issue again in its home market until March 2022, but since then has sold four £500m FRNs including yesterday’s trade.

The sterling benchmark came in a week bereft of euro benchmark covered bond issuance, following the Easter weekend, but with markets in general proving more stable following the recent tariff-related turbulence – combining with the PRA announcement to make the timing propitious, according to the lead banker.

“They had been considering the market for a few weeks and didn’t feel overly motivated,” he said. “This week’s been better in terms of credit markets and Trump headlines, but there’s still a reasonable amount of uncertainty, so getting something done in covered bond-land felt like a decent option.

“We announced on Wednesday just as a bit of a heads-up, which in theory means taking some overnight risk, but in this asset class you’re much less concerned about the market moving away from you than in senior or subordinated bank debt.”

Indications of interest were concentrated in the high 50s to 60 area and the lead banker said the final pricing of the 57bp area was “pretty close” to where the leads saw fair value.