NAB Sells Bonds, Issues Price at $700m

National Australia Bank's (ASX:NAB) New Zealand Division sold its very first covered bonds in Australia, which cut funding costs as the market grows for securities back by assets. The bank priced its $700 million five year debt for 88 basis points, which is more than the swap rate. The sale adds $2.3 billion to securities sold by the three leading banks in Australia this year.

Banks overseas are allowed to sell covered notes, but domestic lenders can’t, under laws that the government plans to change within the year. Covered bonds are asset-back securities that stay in the bank balance sheet, and can be sold by default. Local lenders are not allowed to offer securities at home under government laws that favor depositors over creditors.

With a draft legislation released in March, the government lifted the ban to give local banks access to cheaper funding, considering that they live in a nation which has the highest interest rates.