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The UK's dollar deal shows the way

The UK's $3 billion, five-year US dollar Eurobond issue showed what European sovereigns can learn from the UK and vice-versa when it comes to foreign-currency borrowing.

Announced on June 23, the UK deal was notable for its rarity, being the sovereign's first dollar issue for seven years; its pricing, beating the cost of domestic funding by around 10 basis points and saving the UK taxpayer around £8 million; and the level of investor appetite. The deal was also outstanding for its pricing through the dollar curve, and for the speed of book building.

Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley were lead managers and joint bookrunners for the issue.

The bottom line is that dollar funding was cheaper than funding in sterling through gilts at the end of June. So why aren't all European sovereigns doing dollar deals?

Well, the UK deal was for a specific purpose. "The objective was the ongoing financing of the Bank of England's asset liability management of foreign exchange reserves," says Paul Tucker, who runs the bank's foreign exchange market operations, including the UK's foreign currency reserves. "So this was quite a different exercise from financing government borrowing. The gilt auction programme can easily deal with the scale of funding that the government needs.

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