Bank bonds beginning to clear

Standard & Poor's director Phillip Bayley said the US Federal Reserve's rate cut this week has created a 250 basis point differential between five year US Treasuries and Australian government bonds and is helping to create fresh signs of life in the bond market after a pretty dormant six or seven weeks.

"We would expect to see quite a lot of kangaroo issuance as a result of that yield differential," Bayley said.

A kangaroo issuer, the European Investment Bank, was in the corporate bond market this week topping up an existing line with a $500 million issue.

The other issuer this week was Westpac, which followed up its issue of $850 million of three and five year bonds last week with a top-up of $150 million.

Westpac is understood to have priced the three year bonds at 32 basis points over swaps and the five year bonds at 48 points over swap.

Bayley said that if those numbers are correct Westpac is paying three times what it would have been paying a few months ago.

"There is investor appetite. It is a question of price," he said.

Banks have also marketed term dent into offshore markets, including a sterling issue for National Australia Bank marketed by nabCapital and Barclays Capital.

The market is operating again but it is still well below levels reported earlier this year. According to S&P corporate bid issuance was running at $5 billion a month for the first six months of the year.