Clydesdale Bank attracted some £1.5bn (Eu1.87bn) of demand for a £1.1bn debut covered bond yesterday (Thursday) and a lead syndicate official said that the rare move of opting for a dual tranche format for an inaugural issue demonstrated the strength of the currency sector. Meanwhile, Terra BoligKreditt is roadshowing next week.

The UK issuer sold a £400m three year floating rate note and a £700m 14 year fixed rate tranche, with more than £500m of orders placed for the FRN and more than £1bn for the 14 year tranche, according to Jez Walsh, global head of covered bond syndicate at RBS, one of the lead managers alongside Barclays, NAB and Santander.

The FRN was priced at 170bp over three month Libor, in line with guidance, but is trading around 4bp tighter, and the fixed rate tranche was re-offered at 270bp over Gilts, but is also trading tighter, by some 7bp, according to Walsh.

The pricing was fair, he said, taking into account secondary market levels for comparables, such as Abbey and Co-op, the composition of the cover pool, and developments surrounding the position of the UK business of Clydesdale parent National Australia Bank.

The deal comes after NAB at the end of April announced the outcome of a strategic review of its UK banking that confirmed its presence in the UK in connection with a restructuring, including the transfer of a £6bn Clydesdale commercial real estate portfolio.

Going back further, the deal marks the completion of issuance plans that go back to at least last year, when Clydesdale mandated for a debut euro benchmark. The euro-sterling cross currency basis swap is putting UK issuers off euro deals, however.

More recently, Clydesdale’s deal follows a roadshow that finished on Monday, which Walsh said was “fantastic” in being very well attended. The leads collected feedback on Tuesday and Wednesday, and, after final documentation was signed off, opened order books yesterday morning.

The transaction continues a trend in the sterling covered bond market of issuance being split between short dated floaters and ultra long dated fixed rate tranches, with the belly of the curve yet to be tapped. This makes sense, according to Walsh.

“Intermediate fixed rate deals are not what the investor base wants,” he said.

Walsh said that the issuer had been targeting a dual tranche issue from the outset.

“It’s pretty rare to see an inaugural issuer come with a dual tranche and it’s further evidence of the strength of the sterling market,” he said.

UK accounts dominated the transaction, taking all of the 14 year fixed rate bonds and 60.6% of the FRN, followed by Scandinavia 24.8%, Switzerland 4.1%, and others 10.5%.

Asset managers were allocated 76.2% of the fixed rate bonds, insurance companies 23.3%, and others 0.6%. Of the FRN, asset managers bought 52%, banks 38.4%, supranationals 8%, and others 1.6%.

Terra BoligKreditt is going on a roadshow next week and Commerzbank, Nordea, UBS and UniCredit are working with the Norwegian bank.

A banker said that it remained to be seen whether a euro benchmark would follow the roadshow, but that a Norwegian issuer could be an appropriately strong candidate for a new issue after six German deals in the past fortnight.

“Investors are still looking for opportunities,” he said. “However, with the way the market is going yield levels will not be enough at some stage and some buy and hold accounts are already less active.”

He added that another German issuer could also emerge, with BayernLB cited as a candidate. The issuer had been planning to tap the market via Crédit Agricole, Credit Suisse Deutsche Bank and RBS last July, but put that issue on hold when Moody’s put its Pfandbrief ratings on review for possible downgrade.

Any deal would likely come on Wednesday, with the UK having public holidays on Monday and Tuesday, and parts of Germany off on Thursday.