ANZ National is planning to offer a government guaranteed 3 year bond on international wholesale markets as soon as this week, market sources have told interest.co.nz.

This would be the first guaranteed foreign bond issue by a New Zealand bank since the markets froze in September and a step that the Reserve Bank and government have been anxiously waiting for all year.

The sale of the benchmark issue of US dollar bonds is expected to be for a minimum of US$500 million.

The Reserve Bank is worried that New Zealand banks are vulnerable to a complete seizure in financial markets that would cut off foreign funding lines to the banks. The Reserve Bank has been pushing the banks to borrow longer term offshore rather than the 30-90 days that banks are using currently to roll over their foreign debt, which makes up about 40% or NZ$94 billion of the banks' total funding of NZ$234 billion.

The last time a New Zealand bank made a substantial long term bond issue was in July last year when ANZ National raised US$2 billion through a 5 year bond issue at 240 basis points over the local 5 year swaps rate, considered a very high price at the time. The only other New Zealand corporate to issue a long term bond on international markets since the Credit Crunch hit hard in September was Fonterra, which raised 225 million pounds on November 19 with a 15 year Euro Medium Term Note .

Treasury cut the fees for the wholesale bond guarantee in late January to encourage issuance and both RBNZ Governor Alan Bollard and Finance Minister Bill English have been saying for weeks that an issue was imminent and necessary.

Some market sources had suggested international investors were holding back on committing to a New Zealand bond issue until Standard and Poor's had finalised its credit rating for New Zealand, which is currently at AA plus and on review for downgrade. The government's budget on May 28 is seen as a crucial component in S&P's decision.