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Arion has raised IKr2.5 billion ($20 million) using the covered bond programme, through a sale to domestic investors. However, the bond programme can be extended to €1 billion to include European investors as Iceland’s credit rating changes or demand dictates.
Analysts, however, were wary of reading too much into the bond programme, saying the initial issue was small and focused on domestic investors. However, they said it showed that Iceland’s banking sector was displaying tentative evidence of recovery.
Covered bonds, notes backed by pools of assets, have become increasingly popular in recent years with investors attracted by the extra level of protection they offer over unsecured debt. Covered bond issuance in Europe slowed in the second half of last year as the eurozone sovereign debt crisis spilt over into the banking sector. But there was a noticeable pick-up in demand for the bonds by investors in the first few weeks of this year after the European Central Bank’s €489 billion liquidity injection into the region’s banking system.
Euro- and sterling-denominated covered bond issuance so far this year is on a par with where it was last year, at about €40 billion. This month there have been covered bond issues from banks in Spain and Italy.
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