http://www.telegraph.co.uk/finance/3524577/Goldmans-US-government-backed-bond-opens-the-way-for-others.html

Goldman's US-government backed bond opens the way for others
For once rivals might be pleased Goldman Sachs took the lead. The Wall Street firm is the first bank to sell debt backed by the US government under the Federal Deposit Insurance Corporation’s debt guarantee programme.

by Antony Currie, breakingviews.com
Last Updated: 10:12AM GMT 26 Nov 2008

The $5bn deal - around twice what Goldman initially expected to raise – looks like a crowd pleaser. That’s just what the market needs, even if it is still effectively a bailout.

Goldman wasn’t facing a liquidity crisis any time soon, but should be glad to be able to tap the public bond market for the first time in seven months – and at a decent price as the guarantee means the debt is rated triple-A. After adding in the one percentage point fee for using the programme, Goldman is paying 4.25% all-in – roughly half the yield its existing bonds are trading at in the secondary market. That’s a better deal than UK banks are getting. They have to pay their government their median credit default swap premium for the past year plus a 50 basis point fee for their guarantees.

True, most of Goldman’s regular bondholders won’t touch the new paper with such a low coupon. But the deal should give them some comfort that their debt is safe, and may even convince them to buy more of the older bonds. Over time that may bring those spreads down.

But the new debt certainly looks a boon to investors who usually buy US mortgage agency and government debt. Goldman priced the deal to yield more than Fannie Mae and Freddie Mac bonds, even though the FDIC programme offers users the explicit backing of the US government, something the agencies still don't have in writing.

Goldman appears to be overpaying by another metric, too: the deal is priced to yield 0.85 percentage points over mid-swaps, or the median rate at which double-A-rated banks lend to each other. Of course, it’s not unusual to offer a sweetener for a new deal from a new programme. That it succeeded should encourage other banks to follow suit, and potentially at better rates - and then start lending the money to get the economy moving. US banks shouldn’t get too cocky, though. After all, any success is down to Uncle Sam. Without US taxpayers propping them up, most would be in bond market hell.