Royal Bank of Scotland raised Eu750m of pre-funding via a five year covered bond yesterday (Wednesday) that a banker at one of the leads said was satisfactory, even though Eu1bn had been hoped for, given what he described as unprecedented developments in the broader market.

The deal is the UK bank’s fourth benchmark covered bond this year, and is only one of two new issues since the end of October. Norway’s SpareBank 1 Boligkreditt on Tuesday sold a Eu1bn five year at 63bp over, on the back of a Eu1.7bn order book.

RBS’s leads – Citi, Credit Suisse, Danske Bank, HSBC, Natixis and RBS – had significant reverse enquiry demand and opened the order books yesterday morning after market conditions improved slightly, according to Jez Walsh, global head of covered bond syndicate at RBS. Guidance was set at the 150bp over mid-swaps area.

Market conditions turned during execution, however, causing risk appetite to decline on the day, he said.

“The market is so skittish, and windows of execution are fraught with risk,” said Walsh. “Of course we would have liked to print a billion, but we did an appropriately sized deal at a competitive level.”

More than Eu800m of orders were placed for the Regulated Covered Bond, which was priced at 150bp over mid-swaps, in line with guidance.

Walsh said that it is important to bear in mind the unprecedented nature of prevailing market developments, “even with recent precedents”, pointing out that French 10 year government bonds were trading 2% wide of Bunds and Spanish yields breached 7% after a poorly received auction that did not reach its targeted size today (Thursday).

“We are at new depths,” he said, “and in the context of the broader market we are pleased with the outcome of our deal.”

A syndicate official away from the leads said that RBS’s trade was “a tricky one”, and that while the spread and new issue premium – of around 15bp – were fair, the transaction did not attract the level of demand the leads and issuer would have wished for.

“The secondary curve reacted more strongly that may have been expected,” he said, “reflecting some switches and that there was not that much outright demand.

“I don’t think they did anything wrong in terms of the spread or new issue premium, it was more a function of huge intraday volatility and there also still being a big difference between Norway and the UK.”

He said that he would rather see an oversubscribed Eu750m deal than a Eu1bn trade that was not fully placed with end investors.

Another syndicate banker away from the leads contrasted RBS’s deal with SpareBank 1’s, but said that the quality of the issuers were not comparable and that other issuers should not be so nervous about testing the market when access had been demonstrated.

Walsh put the new issue concession at 15bp over mid levels, but said that it was closer to 10bp-12bp based on bid levels.

Bank treasuries bought 67.6% of the bonds, fund managers 13.8%, central banks 10.5%, pension funds 6.5%, and insurance companies 1.6%. The UK was allocated 33.2%, offshore US accounts 19.7%, the Nordics 15.6%, France 9.4%, Asia 6.5%, Germany 5.9%, eastern Europe 3.3%, and others 5.8%.