Saturday, 27 March 2010

Finnish Sterling Bond

Finnish sterling bond issue leads trend

By David Oakley

Published: March 22 2010 18:22 | Last updated: March 22 2010 18:22

Finland has issued the first sterling bond by a government outside the UK in six years as record levels of debt make it harder for sovereigns to attract buyers in their domestic currencies.

The Finnish deal, which saw twice the demand for the £500m ($754m) raised, may pave the way for more similar transactions as other eurozone governments seek to diversify and attract new pools of buyers.

Myles Clarke, head of bond syndicate at RBS, said: “Countries such as Finland are looking to diversify and find other investors as issuance in eurozone debt rises sharply. This is a trend that is likely to continue.”

Finland paid only 3 basis points over the sterling London interbank offered rate in a five-year floating rate deal. This was cheaper than raising money in euros because of attractive terms in the basis swaps market. Finland immediately swapped the money raised back into euros, but at a cheaper rate.

A large chunk of the demand came from British investors, such as pension funds, Swiss retail investors and central banks. This is a different pool of investors to those who would typically buy Finnish bonds denominated in euros.

So far this year, three eurozone governments – Belgium, Italy and Portugal – have issued debt in dollars, with expectations that Germany, France and Spain are preparing to raise money in the US currency over the coming weeks.

With a record €1,000bn ($1,355bn) in issuance expected from eurozone states this year, sovereign debt managers are increasingly looking at different regions to attract buyers in a crowded marketplace. Last year, Germany, Spain, Belgium, Austria, Italy and Portugal launched dollar-denominated deals.

Barclays Capital forecasts that up to $20bn will be issued in dollars by eurozone countries this year compared with $12.5bn last year, $7.6bn in 2008 and only $2bn in 2007.

Although European governments are likely to choose the dollar for fund raising, the Swiss franc, the yen and sterling are also being considered.

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