(Adds background, details, comment) by Mark Brown Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Royal Bank of Scotland Group PLC (RBS) is planning its first ever issue of covered bonds, a syndicate official at the bank said Wednesday. Guidance on the three-year, euro-denominated deal has been set in the area of 125 basis points over mid-swaps. RBS met investors to discuss the possibility of issuing covered bonds on a roadshow last month. Covered bonds are high-quality bonds issued by banks to refinance mortgages or public-sector loans. Banks are required to maintain the credit quality loans, sometimes in accordance with specific legislation, and investors have a claim both on the issuing bank and the assets in the cover pool. Issuance has increased in June after a lull in May due to the spillover effects of the sovereign debt crisis, but most of the new supply has come from German and French banks. A banker not involved in the transaction said it made sense for RBS to issue a three-year bond after several five-year deals in recent days. The U.K. covered-bond market is much smaller than these older continental European covered-bond markets, but it is seen as one possible source of funds for lenders as they seek to replace government support measures like the Special Liquidity Scheme (SLS) and the Credit Guarantee Scheme (CGS). Barclays PLC (BCS) and Lloyds Banking Group PLC (LYG) have both issued covered bonds in 2010. -by Mark Brown, Dow Jones Newswires; + 44 (0)207 842 9485, mark.brown@dowjones.com (END) Dow Jones Newswires June 09, 2010 04:31 ET (08:31 GMT)