RBS Debut Covered Bond Tightens In Secondary Trading

10th Jun 2010 17:30

LONDON (Dow Jones)--Royal Bank of Scotland Group PLC's (RBS) debut covered bond issue was well received in the secondary market Thursday, with the spread tightening by 5-10 basis points. RBS priced the three-year, EUR1.25 billion deal at 125 basis points over mid-swaps Wednesday. The order book reached just over EUR1.9 billion, from around 100 investors from Germany, France, the U.K. and several other jurisdictions. "We got broad distribution and strong demand, and could have increased the deal to EUR1.5 billion," said Jeremy Walsh, syndicate banker at RBS. "That demand has helped the bond deliver the solid secondary market performance we were hoping for." As well as being RBS's debut, the deal was the first new benchmark U.K. covered bond since March. Covered bonds are high-quality bonds issued by banks to refinance mortgages or public-sector loans. Banks must maintain the credit quality loans, sometimes in accordance with specific legislation, and investors have a claim both on the issuing bank and the assets in the cover pool. The U.K. market is smaller than "core" continental European markets, but covered bonds should offer U.K. lenders an alternative source of funds as they seek to replace government support measures like the Special Liquidity Scheme and the Credit Guarantee Scheme. -by Mark Brown, Dow Jones Newswires; + 44 (0)207 842 9485, [email protected] (END) Dow Jones Newswires June 10, 2010 12:30 ET (16:30 GMT)