Barclays Bank yesterday (Monday) raised Eu750m of funding via a dual tranche tap that market participants said was followed by a widening of UK covered bonds and illustrated the large size of new issue premiums that forthcoming supply will need to offer.

The UK bank reopened two Regulated Covered Bonds, adding Eu450m to a September 2014 issue at 105bp over mid-swaps, in line with guidance, and Eu300m to a March 2022 deal at 130bp over, also in line with guidance.

The Covered Bond Report was unbable to speak to Barclays Capital, the sole lead manager of the transaction, by the time of going to press.

A syndicate official away from the deal said that opting for a dual tranche tap was a good approach as it targeted different investor bases. And while he said that, at Eu750m, the aggregate size of the transaction was “not a fantastic result”, he added that it was executed amid poor market conditions, with liquidity drying up as the year comes to an end.

“I’m not sure they were pushing for more and you can’t expect to get size done this late in the year,” he said.

He put the new issue premium on the September 2014 increase at around 15bp, and 20bp for the March 2022 tap, based on mid levels.

Another syndicate official away from the leads was more negative about the transaction’s implications for the market.

“My guess was that they were targeting a total size of Eu1bn,” he said, “so I was a bit disappointed by the final size because Barclays is a good, rare issuer that doesn’t carry the same negative cachet as other issuers.

“It shows how illiquid the market is.”

He added that he did not quite understand the pricing, estimating that the shorter tranche offered a new issue premium of 18bp-20bp and the longer tranche 10bp-11bp.

Another syndicate banker away from the transaction said that the new issue premiums were at least 15bp-20bp, most clearly so for the increase to the short dated issue, and that the UK curve had widened as a result.

“It was fairly generous,” he said, “but in a context that wasn’t easy, so it is good that they were able to print a transaction.”

However, he said that the pricing showed that even high quality issuers have to offer value, and that this will be a theme for upcoming supply.

A syndicate official said UK covered bonds had widened by 10bp-20bp since Barclays’ taps.

“I heard that UK covered bonds got hit pretty hard afterwards,” he said. “That was a surprise because I didn’t think it would be that difficult.”

Royal Bank of Scotland analysts said that the levels on the Barclays taps offered significant new issue premiums. Looking ahead to January, they said that with covered bonds the long term funding instrument of choice, supply will only be constrained by demand.

“As such, high new issue premia are likely to become the norm as financials attempt to secure funding, particularly if similarly large ‘discounts’ to outstanding bonds are being offered by other issuers,” they said. “This, as well as the underlying sovereign story, bode very poorly for covered bond spreads as 2012 approaches.”

Another said that he expected Barclays’ taps will be the last benchmark covered bond supply of 2011.

“If it had been a blowout on both taps that could have stirred a few people to look at doing something,” he said.