Maturity: December 7, 2007
Issue price: 100.822
Fixed re-offer price: 99.372
Spread at re-offer: 42bp over the 7.25% December 2007 Gilt
Launched: Thursday June 17
Joint books: Royal Bank of Scotland, UBS
RBS ? The borrower?s outstanding 2007 bond is an old deal from 1997 and this issue was designed to provide the market with a current coupon bond in this maturity and to build a curve for the new issuing entity.
Price talk of 42bp area over the Gilt was in line with the borrower?s curve and the 4.125% 2006 bond, which had caught a retail bid, trading in the 20s over the Gilt, the 7.25% 2007 transaction trading at 39bp bid and the 4.5% 2008 at 40bp on the bid. Clearly the new 2007 issue represented fair to good value against the curve.
We launched the issue into the continuing strong demand we are seeing from institutions at the short end of the sterling curve. This is being driven by various factors, most notably the interest rate outlook, concerns surrounding CP 195 and the cash still available from Gilt coupon payments.
UBS ? We announced the sterling bond for GE yesterday (Wednesday) afternoon at Gilts plus 42bp area and priced it today at 42bp.
Interestingly, we had upwards of 20% of the transaction sold to Asian accounts with the balance selling mainly to UK accounts but with some Swiss retail involvement as well.
The choice of the December 2007 maturity was to give the borrower a current coupon 2007 issue. It has a shorter 2007 deal and a 2006 maturity, both of which are trading very well into retail.
There has been strong demand for short-end product, driven primarily by UK money managers buying short dated sterling this week on the back of widening swap spreads.
There has been a real flurry of activity in the sector this week with fund managers shortening maturity out of ultra longs and buying the two to five year part of the curve.
There are probably some CP 195 concerns involved but it is more the fact that discussions over the last couple of weeks by the Bank of England have indicated that rates might rise quicker than anticipated.