Last week some of the largest banks in the US were finally able to avail themselves of viable guarantees from the Federal Deposit Insurance Commission and issue triple-A rated bonds in large volumes. Goldman Sachs, Morgan Stanley and JP Morgan issued a total of US$17.25 billion of bonds. And while the bonds were structured as global issues, it would seem that they were taken up primarily by US investors.A surprising aspect of the issuance was the considerably wider credit spreads demanded by investors to buy the bonds. The UK banks have been issuing government guaranteed bonds for the last month and over that time credit spreads on three-year bonds have narrowed to 15 bps from 25 bps. Goldman Sachs and Morgan Stanley issued three-year bonds with a spread of 85 bps to mid-swaps. Two-year bonds issued by Morgan Stanley required a spread of 80 bps to mid-swap.JP Morgan did a little better, perhaps because it was the last of the three to issue on the eve of the Thanksgiving holiday. It raised three-year funds at 78 bps over and two-year funds at 50 bps over (this was for a relatively small US$0.5 billion).As we noted last week, even the Irish have been able to issue cheaper than this. Ireland's largest bank, Bank of Ireland Plc., also raised two-year funds during the week, at mid-swaps plus 65 bps.   So why are the US banks having to pay so much even though they are guaranteed by the US government? Could it be that investors are truly worried about the credit quality of the United States, with its massive twin deficits and numerous recently announced "aid" packages, which Bloomberg valued last week at US$7.8 trillion? Probably not: US Treasuries remain the world's ultimate financial refuge. It is more likely that US investors are reacting to the sheer volume of issuance that is expected. Bank of America, Citibank and others are yet to issue and even GE Capital, which is triple A rated in its own right, has flagged its intention to issue US$11 billion of government guaranteed bonds. Total issuance under the guarantee, which will only be available until June 2009, has been estimated at up to US$600 billion.Nevertheless, there may be some niggling doubts over the credit quality of the United States. JP Morgan also issued three-year bonds in the Euromarket (denominated in euros and pounds sterling) on Thursday and paid 40 bps over mid-swaps, only a little better than the Irish. This still leaves us with the question of what will the Australian banks have to pay to sell Australian government guaranteed bonds, when they eventually get the chance to do so. The enabling legislation is yet to be enacted, even though the government guarantee was to be available from Friday.An oversupply of government guaranteed bank bonds is now looming as a real problem in overseas markets. From this perspective, the Australian banks may well be best served by issuing as much debt as the market will absorb to local investors.