Arion Bank launched the first covered bonds off a new legislative programme on Friday, Isk2.5bn (Eu15.4m) of bonds that the bank said attracted Isk8.7bn of demand.

The Icelandic bank recently finalised the programme after taking over the structured programme of its predecessor, the failed Kaupthing.

Arion’s issuance comes after Íslandsbanki issued Isk4bn of covered bonds in December in a transaction that is believed to have represented the first wholesale funding for an Icelandic bank since the country’s financial system collapsed in 2008.

Like Íslandsbanki’s, Arion’s covered bonds are inflation linked. They pay a 3.6% inflation linked coupon and mature in 2034, although prepayment is permitted from 2017.

“We are delighted that the Bank’s first bond offering got such a positive reception from the market,” said Höskuldur Ólafsson, Arion’s CEO. “The level of demand reflects the faith the market has in the bank and the work done to build the business over the last few years.

“It is important that we broaden the bank’s funding profile and this offering has given us a significant boost for the future.”

Click here for recent coverage of Arion’s new programme.