Spreads on term debt for major banks are narrowing, judging by domestic and offshore deals concluded over the last day or so. Westpac surprised the domestic wholesale debt market yesterday with a A$2 billion, two-tranche five-year bond issue. The bank was able to achieve tighter pricing than was the case with the last comparable sale of bank debt, by National Australia Bank, which was less than a month ago.The Westpac issue was split between $1.27 billion of floating rate and A$725 million of fixed rate notes, sold with a credit spread of 165 basis points over bank bill swap. This compares favourably with the 185 basis points that NAB paid in the second week of February to sell $1.5 billion of floating and fixed rate notes.However, those NAB notes are now priced at just 145 bps over bank bills in the secondary market (at least according to the rate sheets), which means Westpac offered investors a 20-point new issue premium. That might seem a lot of new issue premium but, on the other hand, it is not as large as the premium Commonwealth was prepared to pay the night before to sell US$4 billion of bonds in the US 144a market.CBA sold US$2 billion of three-year bonds at 155 basis points over US Treasuries, which reportedly swap back into Australian dollars at around 168 points over bank bills. The bank also sold US$2 billion of five-year covered bonds at 115 points over Treasuries. These should swap back at around 165 points over bank bills. On the basis of this CBA deal, it is worth noting that spreads for covered bonds required by US investors are no narrower than in November 2011, when ANZ and Westpac opened up that market.Despite the credit spreads paid by CBA this week, it seems that bank funding costs are trending downwards once again. The Reserve Bank made the same observation when it held the cash rate steady yesterday.RBA governor Glenn Stevens noted when announcing the decision: "Financial market sentiment has continued to improve in recent weeks and capital markets are again supplying funding to corporations and well-rated banks, albeit at costs that are higher, relative to benchmark rates, than in mid-2011."