The price of a Commonwealth Bank debt issue will test bank willingness to pass on any further RBA cuts.
Yesterday, CBA issued $3.5bn worth of covered bonds to the local market - the first issue of the instruments following regulatory changes - but paid a higher margin to investors than expected.
The squeeze - which saw CBA pay 1.75 percentage points above the short-term bank bill swap rate - highlights the difficulties banks are likely to face in raising funds cheply this year.
The Australian Financial Review reports analysts saying that banks could even be pushed toward out of cycle mortgage rate rises instead of cuts, as a result of the ongoing European debt crisis.
Covered bonds are a debt instrument that provides extra security to investors ahead of the depositors of a financial institution, and were given the green light by legislation passed in October last year.