By Gareth Vaughan

ANZ has raised NZ$250 million in the first domestic bond issue by a bank so far in 2011 as Kiwi corporate interest in the US private placement market steps up.

ANZ raised NZ$150 million in five year bonds and NZ$100 million in seven year bonds. The bonds were issued to institutional, or professional, investors.

The five year bonds was priced at 165 basis points over the swap rate giving them a coupon of 6.315% and the seven year was priced at 180 basis points over swap giving a coupon of 6.85%.

In a quiet start to the year for the domestic debt market, there have been just four bond issues to date. Aside from ANZ's, a NZ$150 million four year issue by the Auckland Council owned Watercare was priced at 133 basis points over the swap rate yesterday. Issued under the Auckland Council guarantee, the Watercare bonds carry an AA credit rating. In the other issues, the Wellington City Council is seeking to raise NZ$25 million and German agribusiness lender Rentenbank raised NZ$50 million.

One senior market source said several local corporates had their eyes on the US private placement market with indicative interest in borrowing between US$800 million and US$900 million (NZ$1 billion to NZ$1.12 billion) over there in coming months on terms of 10 years and more, longer than is available domestically. This comes on top of the about US$682 million raised in the US private placement market by Transpower, Vector, Auckland International Airport and Mighty River Power, combined, between September and December last year.

Kiwi corporates are being enticed by the US private placement market by cheap lending rates and the long durations of the loans. Interest .co.nz was told there was now broader interest in the US market than from just utilities with fresh issues possible in the next quarter.

Loans from the US private placement market for a local company with a generic investment grade credit rating could be priced in the early 200 basis points range over the 10-year New Zealand swap rate, the source said.

"That's pretty challenging for the local market to beat for shorter terms," he said.

US debt investors face an extended period of near zero official interest rates as the Federal Reserve pursues Quantitative Easing to devalue the US dollar and try and kick start the troubled US economy. This is encouraging them to invest in corporate and government debt in non US$ currencies with higher interest rates. New Zealand's Official Cash Rate is 3%.

The Australian Financial Review recently reported that 16 Australasian borrowers accounted for A$4.5 billion of the A$45 billion raised in a record year of US private bond issuance during 2010 with the likes of life insurers MetLife, American International Group and Prudential Finance snapping up the bonds. Of other foreign issuers, only British companies raised more money. For their long lending terms, the US insurers ask for extensive investor protection and covenants from the borrowers making private placement market loans more like bank loans than typical bonds.