Upon its return to the sterling covered bond space on Tuesday, HSBC UK Bank received the largest subscription the space has seen since November 2022. Its £500m five-year FRN issue drew over £1.35bn in orders, which is the largest book recorded in the sector since early June.
“It's a good outcome, a bigger book than they did on their inaugural last year,” a banker away from the trade said, before pointing out that most of the recent, tighter, five-year sterling covered trades had been difficult executions for issuers.
“If you think about the Skipton, the Yorkie, the Lloyds and the Nationwide, they were good trades but they got progressively harder as the trades went on,” he said.
There’s a scarcity element to HSBC UK’s name, which was helpful. The issuer only has one outstanding covered bond in the UK currency; a debut £500m August 2027 FRN which priced at Sonia plus 62bp off a £1.5bn plus book last September and which was quoted around 47bp, according to one of the lead managers.
HSBC, BMO Capital Markets, CIBC Capital Markets, IMI-Intesa Sanpaolo, Lloyds and Santander opened books for this no-grow trade with guidance at Sonia plus 53bp. They refined pricing to 50bp, having collected over £1.35bn in orders.
“Pricing-wise, we obviously had a limited size print, hence why we started were we did,” the lead manager said. “We could have easily priced this in the high 40s, but at the end of the day there’s obviously a tipping point between 50bp and high 40s where you start to lose quite a significant amount of investors.
“The issuer chose to do the right thing by encompassing all of their investors given it's a rare name, they don't issue all the time, and it's a relatively new programme they are building up.”
While for the lead manager HSBC UK paid 1bp–2bp in new issue premium, the banker away thought the issuer left the table bare.
“The new issue concession is basically nothing. We saw fair value around 50bp," the latter said.
Elsewhere, DekaBank landed a €250m October 2026 Hypothekenpfandbrief at mid-swaps plus 9bp – following 12bp area guidance – on the back of an order book in excess of €525m. The trade offered a new issue premium of 7bp–8bp, according to a lead manager.
That lead manager said: "It’s one of the few German covered bonds to have looked at the market in the last couple of days, and obviously with the last sub-benchmark coming out of Germany, the Landesbank Berlin €500m 5.5-year at plus 17bp not being subscribed, clearly it was a warning signal.
“So we had to be careful when thinking about the starting point. Investors appeared to be a bit more careful about the sub-benchmark size and the fact that this is only LCR (liquidity coverage ratio) 2A. It was very quickly clear that they expected a double-digit spread from the start,” he said.
The trade was arranged through DekaBank, DZ Bank and Erste Group.