* Barclays follows Lloyds, Standard Chartered, Abbey intomarket
* Scottish-based lenders worst performers of UK bank debt
* Yes vote will not block UK bank market access - investors
By Aimee Donnellan
LONDON, Sept 8 (IFR) - UK banks are taking the global bondmarkets by storm, raising billions of debt ahead of a crucialindependence vote for Scotland, keen to lock in funding ahead ofpotential volatility.
Barclays Bank was the latest financial institution to ploughin the market on Monday with a short-dated covered issue.
It comes hot on the heels of Lloyds Bank and StandardChartered, which raised over £3.5bn-equivalent in the euro anddollar markets last week, and ahead of HSBC, Nationwide BuildingSociete and Abbey National.
The Scottish independence debate has been rumbling in thebackground for months, but with the vote in less than two weeksand a YouGov survey in the Sunday press putting the "yes" campnarrowly ahead, it is a stark reminder things might not go asthe market hopes.
"Right now, we don't know what the fallout might be if thereis a "yes" vote," a head of syndicate said. "I don't think itwould stop issuers from having access but generally, one thingthe market does not like is uncertainty and a "yes" vote wouldcertainly bring that on."
A London-based fund manager agreed. "If they [the Scots]vote "yes" it will definitely have an impact on the likes of RBSand Lloyds that have their registered offices in Scotland astheir ratings will be significantly lower," he said.
These banks were the worst performers of the UK lenders inthe bond market on Monday morning with RBS's curve widening by5bp and Lloyds' by 4bp, while Barclays' only moved 1bp wider.
They also suffered in the stock market with Lloyds and RBS the biggest losers this morning, down 2.2% and 2.7% respectively
According to analysts at Morgan Stanley, a swift move ofdomicile to the UK, post-Scottish independence, by RBS andLloyds may allay a lot of the fears credit investors may haveover the consequences of an independent Scotland for the banks.
VOLATILITY AHEAD
UK banks have been caught off-guard by the momentum of the"yes" vote, and that could cause volatility in the bond market,temporarily raising funding costs for all UK lenders.
"Investors are confident in the strength of UK banks butwhen they are buying long-term debt, they will be thinking aboutwhat might happen to it in the future," the fund manager said.
Debt capital market experts are quick to point out that a"yes" vote will not block UK banks from accessing the bondmarket, but a disruption to the way the UK economy functions maycause volatility.
"I don't think UK banks are particularly prepared for a"yes" vote so there is some activity in the market now," said adebt capital markets banker.
"Barclays is going for low risk, low cost because whilethere is a fear that a "yes" vote may cause problems,quantitative easing in Europe will reduce funding costsfurther."
Investors so far appear to have been undeterred by thefears. Barclays' transaction had attracted around £1.8bn ofdemand at the last update.
Lloyds had no problems either last week, attracting around1.7bn of orders for a 1bn five-year trade and just shy ofUS$3bn for a US$1bn deal at the same maturity.
And while credit default swaps have widened today, UK banks'funding costs have improved remarkably in the past two years.
The yield on a 2017 senior bond for Lloyds has fallen infrom 4.5% at the beginning of 2012 to just 0.5% today. (Reporting by Aimee Donnellan, Editing by Helene Durand, SudipRoy and Julian Baker)
Barclays (BARC)