Royal Bank of Scotland issued a Eu2bn three year covered bond on Wednesday on the back of the largest book of any deal since the market reopened. A funding official at the issuer said that UK banks are in a strong position in spite of the general pressures on bank funding.

Leads Banco Santander, BNP Paribas, Citi, RBS, UBS and UniCredit built a book of Eu3.5bn, Eu1.2bn greater than the next largest book built since ING reopened the market last week.

“We are very pleased by the order book, the quality of the investors, and the way we were able to diversify funding,” said Monika Tarr, term funding and capital raising manager at RBS, “so it really ticked all the boxes.”

The spread was fixed at 93bp over mid-swaps, after a tightening from initial price thoughts of 95bp-100bp over and refined guidance of 93bp-95bp over. Today (Friday) the transaction had tightened around 3bp.

The main pricing comparables comprised a March 2016 RBS trading at 105bp mid and a September 2015 at 95bp mid.

“If you look at either of those, that would lead to a theoretical secondary level of around 85bp, leading to a new issue premium on the transaction of around 8bp,” said Jez Walsh, global head of covered bond syndicate at RBS. “I don’t think you should get overly concerned about the new issue premium if it’s a situation whereby the secondary deals have barely moved or are not actively trading, and are therefore not providing the most accurate reference point, whilst the broader markets are moving much wider.

“10bp-15bp would have been fine,” he added, “8bp was great.”

RBS decided to launch a three year because it fitted into its maturity profile after having done a seven year and a 10 year in 2011, according to the issuer.

“In terms of secondary flows and investor demand, it seemed that that part of the curve was sort of sought after,” added Tarr. “Also our 2013 from last year – three year at the time – has performed very well.”

John Paul Coleman, head of capital raising and term funding at RBS, said the issuer was ready to enter the market last week but did not expect the market to open up as quickly as it did.

“ING gave us a lot of confidence that the market had opened,” he said. “It was an excellent deal and the catalyst for all this issuance.”

An ING Eu1.75bn 10 year reopened the market on 24 August.

“We’ve also demonstrated a very diversified approach to funding,” said Tarr.

Walsh at RBS said the execution risk was higher for senior unsecured than covered bonds.

“Would we have market access?” said Walsh. “Absolutely. Would these guys say it’s the right issue to come right now? I guess not.

“And I think every issuer would concur with that, as shown by the markets.”

RBS has now raised the majority of its financing for the year, according to the bank, and said that while general bank funding worries are justified, there is less of a concern for UK banks.

“This crisis has gone on three or four years, so obviously when the market seizes up and there is no issuance it is understandable that investors have concerns around banks’ funding requirements,” said Coleman. “But UK banks like ourselves have done a lot of funding year to date – somewhere in the range of 75%-80% of budgeted requirements.

“In addition, banks’ balance sheets are in a far stronger position now versus when this started a number of years ago.”