year. this is notwithstanding the fact that covered bonds are senior in the creditor queue. while the cost of the first wave of covered bond issuance by the australian banks has been high, it is broadly comparable to that of recent covered issuance by banks in other jurisdictions where there has been a similar step up in cost ( graph 3 ). in the past few days, there has been a sizeable narrowing of spreads in the secondary market on the domestically issued covered bonds, to around 140 points over swap. this narrowing in bank credit spreads was confirmed by the unsecured issuance last week. graph 3 covered bond pricing spread to us $ swap, 4 – 6 year aaa - rated bps bps – france – netherlands – norway – canada australia - 100 m l j l s l d l m l j l s l d l m - 100 * non - us $ issuance converted into us $ spreads sources : bloomberg ; rba the other point of interest in table 1 is that some corporates are able to issue at lower rates than the banks, even for the aaa - rated covered bonds. for example, coke, which is rated a -, was able to issue more than 100 basis points below the aaa rated domestic covered bond issues. bis central bankers ’ speeches the rise in wholesale funding costs has been accentuated for funds raised offshore by a widening in the cost of swapping foreign exchange into australian dollars ( graph 4 ). this is another example of european issues affecting the local market, as the widening is partly a function of the lower volume of kangaroo issuance in recent months. the kangaroo issuers seek to swap the $ a funding they raise back into foreign currency, while the australian banks do the reverse with their foreign currency raisings. graph 4 a $ cross - currency basis swap spreads * 5 - year funding bps bps swapping euro into a $ swapping us $ into a $ - 25 - 25 - 50 - 75 - 50 l l l l - 75 * premium paid for hedging cash flows on foreign currency bond issues source : bloomberg over the past few years, issuance in the first quarter, particularly by kangaroo issuers, has been strong. that has not been the case so far this year. ratings uncertainty around european sovereigns has contributed to this. with the downgrade of a number of european sovereigns by some rating agencies in december, including france, some pan european entities, including the european financial stability facility ( efsf )

optimism over the past couple of years which were dashed. i think the only thing which is certain, is that uncertainty is likely to persist for some time to come. in that regard i ’ d like to finish with a variation on the famous rumfeldian take on uncertainty, recently articulated by david murphy on his deus ex macchiato blog : there are known unknowns and unknown unknowns, which complicate the pricing of risk, but over the past decade, there has also been a fair few examples of “ too - lazy - to - be - knowns ”. european sovereign debt before 2007 might conceivably fall into that category. while mispricing due to knightian uncertainty is excusable, mispricing due to laziness is not. as i said last november, you ’ ve got to know your product, otherwise, it can quickly turn into a case of no, your product. 3 aficionados of the saints will be aware that these two songs bookend side one of eternally yours. this can be translated into financial terms as : if you owe the bank $ 100, that ’ s your problem. if you owe the bank $ 100 million, that ’ s the bank ’ s problem. bis central bankers ’ speeches