RBS returned to the covered bond market after a five year absence with a dual tranche, Eu1.25bn and £1.25bn offering on Tuesday to reengage with investors in both markets and take a first step in becoming a regular issuer, according to its head of fixed income investor relations, with the UK bank’s funding needs increasing on the back of strong mortgage growth.

The new issue was RBS’s first benchmark covered bond since January 2012, when it sold a £1bn 12 year. Its last euro benchmark was a Eu750m five year in November 2011.

Matthew Richardson, head of fixed income investor relations at RBS, said the issuer returned to the covered bond market to finance substantial growth in its mortgage lending.

“It reflects the progress we’ve made in the business,” he said.

RBS has been through a restructuring process over the last few years, focussing back on its retail and commercial businesses, especially in the UK.

“That’s seen a significant investment in the mortgage market – depending on the quarter, over the last couple of years we’ve put on between 11% and 13% new business versus a share of the mortgage market stock of around 9%,” Richardson said. “So the covered bond market was a natural place to return to.”

Having made the decision to begin marketing a trade, RBS sounded out demand for a dual tranche, dual currency offering, announcing in the roadshow mandate that it would consider a potential euro benchmark seven year and/or three year sterling benchmark transaction.

“We wanted to reengage with the market, and of course the euro is the home market for covered bonds and so was a natural place to start,” Richardson said. “But then sterling is our home market.

“We gauged appetite on the roadshow, and having conducted meetings in London and Europe, we worked with the syndicates and it felt like there was the basis of a successful transaction to do.”

The seven year euro tranche was launched on Tuesday morning with initial price thoughts of the 15bp over mid-swaps area. Guidance was then set at the 12bp area on the back of books in excess of Eu1.75bn, before the spread was set at 10bp with books in excess of Eu2.25bn. The size was ultimately set at Eu1.25bn, with books at around Eu2.4bn.

The three year sterling floating rate note (FRN) was launched with IPTs of the 30bp over three month Libor area. Guidance was then set at the 27bp area on the back of books in excess of £1.5bn, before the spread was finalised at 26bp with books in excess of £2.1bn. The size was later set at £1.25bn (Eu1.47bn), with books at £2.3bn.

The transaction – at Eu2.72bn equivalent – is the largest covered bond transaction since Crédit Agricole sold a Eu3.25bn dual-tranche deal in March 2016.

“We feel it went really well,” said Richardson. “It’s nice to have priced at a comparable level as our peers – although there’s no reason we shouldn’t have done – and to have got the amount of support we did as well.”

Richardson noted that market conditions had been supportive, despite potential political risks, with the UK’s upcoming general election announced the week before RBS mandated its roadshow.

“It’s quite fraught trying to pick the market, with election risk and so on,” he said. “It’s nice that we got the timing right.

“The deal is just one step, but we’re very pleased.”

Having reengaged with investors, RBS now intends to be a regular covered bond issuer in the coming years, added Richardson.