Lloyds’ first sterling benchmark covered bond in almost three years, a £1bn five year FRN, yesterday (Thursday) attracted over £1.75bn of orders and achieved the tightest pricing on any Sonia-linked deal in over a year, with its scarcity value and a buoyant underlying market cited as factors in its success.

Leads Lloyds, BBVA, BMO, HSBC and TD opened books yesterday morning with guidance of the Sonia plus 52bp area for a sterling benchmark-sized November 2030 floating rate note, expected ratings Aaa/AAA (Moody’s/Fitch).

After around an hour and 20 minutes, they reported books above £1.5bn, and after a little over three hours, they set the spread at Sonia plus 47bp and the size at £1bn (€1.14bn) on the back of books above £1.95bn. The final book was above £1.75bn.

The deal is the tightest sterling benchmark covered bond in over a year, since Yorkshire Building Society issued a £750m five year at 45bp in May 2024. It is also the tightest £1bn or greater deal from a UK issuer and tightest £1bn or greater five year FRN from any issuer since 2021.

“This was a really good trade,” said a banker at one of the leads. “Lloyds benefited significantly from being a UK national champion and reaped the rewards of their rarity cachet.”

The new issue is Lloyds’ first sterling benchmark since November 2022, when it issued a £1bn five year FRN, and its first benchmark covered bond in any currency since January 2023, when it sold a €1bn three year.

Lloyds’ FRN comes on the back of a brisk autumn season in the sterling covered bond market, being the eighth trade of £500m or greater.

“Investors have healthy cash balances,” said the lead banker, “and recent sterling covered bonds have performed well.”

He put the new issue premium at 1bp. The last UK Sonia-linked covered bond was a £600m five year for Coventry Building Society on 12 September at Sonia plus 48bp.

“Lloyds traded 1bp tighter on the break,” he added, “demonstrating the pinpoint pricing.”

The five year maturity enabled it to take advantage of the flat credit curve while extending its maturity profile beyond 2029 into 2030, according to the lead banker.

The covered bond wrapped up a busy week for Lloyds in the capital markets after it announced its Q3 results on Thursday of last week (23 October): on Monday it issued a $1bn (£759m, €863m) 6.625% perpetual non-call 10 year Additional Tier 1 (AT1), and then on Tuesday raised $3.05bn of senior debt in a three tranche issue.