Westpac NZ's issue of NZ$385 million of three-year floating rate notes this week was so well bid for by local fund managers that it achieved the tightest spread for a bank bond issue since the financial crisis.The spread, of 75 basis points, was set at the bottom of the indicative range, and the size of the issue was in the top half of the indicated range, of NZ$200 million to $500 million.Westpac NZ treasurer Jim Reardon said there was potential for New Zealand banks to use such local debt issues to roll over a significant amount of the $5 billion to $7 billion of New Zealand bank debt set to mature within the next 12 months, including some government-guaranteed debt issued during the crisis. He said some of that maturing debt would have to be refinanced on international markets given insufficient appetite locally.Westpac's issue re-opened a market that had been closed since May, when Rabobank NZ issued NZ$250 million of three-year FRNs at a spread of 88 bps over the 90-day bill rate. Before that, BNZ's issue, in March, of NZ$250 million of five-year FRNs at 121 bps over the benchmark rate was the last issue by a Big Four bank. Reserve Bank of New Zealand figures, in its June Monetary Policy Statement, show long-term indicative wholesale bank funding spreads had fallen from a peak of 300 bps, in October 2011, to around 117 bps by the end of May.Reardon said the majority of the demand for the issue came from local fund managers, with the remainder being taken up by local brokers and other local banks. A fall in funding costs, of around 50 to 100 bps, over the last 18 months has largely been passed on in the form of lower fixed mortgage rates, which has helped drive a surge in mortgage lending and house prices in Auckland and Christchurch.