Westpac NZ has increased the planned size of a five-year bond issue by NZ$300 million, to NZ$800 million, after strong demand from retail and institutional investors. The bond issue was priced at 103 basis points over the five-year swap reference rate, which was in the middle of the 100 bps to 105 bps indicated range and the lowest margin for a five-year bank bond issue since the financial crisis. The issue was Westpac's biggest five-year bond issue and the biggest by a New Zealand bank since ANZ's NZ$835 million five-year perpetual callable issue in April 2008. The previous biggest issues were a NZ$900 million issue by Rabobank NZ in 2007 and a six-year bond from Fonterra in 2009 that raised NZ$800 million. Westpac said it received NZ$820 million worth of bids for the issue, which was originally proposed in a range from NZ$100 million to NZ$500 million.It shows the depth of demand from both retail and institutional investors in a bond market where government bond issuance is dropping as its deficits start to contract. The Reserve Bank noted in its Monetary Policy Statement that funding costs for banks in both wholesale and retail markets were low, with retail deposits growing nine per cent this year despite a fall in average term deposit rates to a four year low of 3.8 per cent.Given Westpac's issue is priced at 103 basis points over five-year swaps, at around 4.5 per cent, the return for investors of around 5.5 per cent is better than average term deposit rates of around five per cent.