Commonwealth Bank confirmed the steep cost of funding for term debt for banks with its placement yesterday of A$3.5 billion in covered bonds with a five-year term. CBA sold the bonds at a spread of 175 basis points to the bank bill swap rate, which was a little lower than the price canvassed with investors on Monday.The bank split the funding into a $2 billion fixed-term tranche and a $1.5 billion floating-rate tranche, with both priced at the same spread over swap.The overall cost of five-year funds for the bank - which will be replicated across the industry - means banks are now paying at least as much for term debt as they did when they relied on the government guarantee on wholesale borrowings in early 2009. (The following article expands on this angle).The CBA believes it raised the five-year funding on terms as cheaply as it could in any market.Simon Maidment, head of group funding at CBA said: "In doing this covered bond transaction relative to any other funding we could source from offshore we are delivering more efficient funding on to the balance sheet."The CBA has helped establish a benchmark for the investment in covered bonds in Australia by institutional investors in what remains a novel asset class.Maidment said CBA was "the pre-eminent bank issuer in Australia. We wanted to get [investors] to look at the asset class. We undertook a transparent book-build procedure."Of the pricing, Maidment said: "This is 40 to 45 basis points better than a covered bond process sold offshore. There is a home market advantage for Australian banks and this trade preserves that home trade advantage."If we look more broadly in terms of five-year wholesale funding opportunities, this is the cheapest five-year funding we can raise. There is nothing cheaper."Maidment said this applied to unsecured bank debt sold in the domestic market. He estimated the spread on five-year bank debt in present market conditions at 200 basis points.In December, National Australia Bank sold three-year debt in the domestic market at a spread of 135 basis points. CBA sold three-year debt in November at 117 basis points.Of those term deals in late 2011, Maidment said: "That was sold primarily to banks. There was some RMBS funding done in the fourth quarter. Those transactions were not widely supported by the institutional real money market."Maidment also stressed that in Australia measures of pricing in the secondary market were a poor guide and that only way to discover prices was to bring an issue to market.Referring again to the CBA and NAB debt priced in late 2011, Maidment said: "Those deals, the levels at which they re-valued in the market on rates sheets etcetera, did not really reflect where credit spreads were in the broader market."Really, the only way to reflect prices is to go out with a transparent issue."