Bank of New York Co. and Republic New York Corp. issued subordinated debt this week at the lowest yields this year for this form of Tier 2 capital.

The Banks joined a slew of corporate issuers that have tapped the debt markets since the bond markets rallied last Thursday.

The bond market's advance, which has driven down yields on longer-term Treasuries by 10 to 15 basis points since last Thursday, was spurred by a worse-than-expected employment report and a cut in short-term interest rates by the Fed.

|Aggressively Priced'

Underwriters are pricing new borrowings at increasingly tighter spreads over Treasuries.

"The last couple of bank deals are pretty aggressively priced," said John Works, bond analyst with Keefe, Bruyette & WoodsInc.

Republic New York issued on Tuesday $250 million of 10-year notes, yielding 7.39%, or 55 basis points over U.S. Treasuries, the lowest-priced subordinated debt offering this year. The issue was underwritten by Lehman Brothers Inc.

Tight yield spreads show that investors in bank bonds are demanding smaller premiums over Treasuries, thus reducing the banks' cost of borrowing.

Underscoring the positive market conditions, the 7.39% yield on Republic's issue is 61 basis points lower than the 8% yield Republic paid two months ago for a $150 million issue of subordinated debt.

The spread on this week's issue was also 10 basis points tighter than those on outstanding Republic bonds on June 30, according to Keefe Bruyette.

Well-Rated Issues

Republic can command tight spreads because its subordinated debt carries strong ratings, A1 by Moody's AA-minus by Standard & and AA-minus by Standard & Poor's.

Bank of New York issued on Tuesday $350 million of 10-year subordinated notes priced to yield 7.73% or 87.5 basis points over U.S. Treasuries. The offer was also managed by Lehman Brothers.

Two subsidiaries, Bank of New York and Bank of New York (Delaware), did not have total capital equal to 10% of risk-based assets at the end of the first quarter, one of the new standards for well-capitalized banks established by the Federal Deposit Insurance Corp. The other criteria are 6% Tier 1 and 5% leverage capital ratios.

A Bank of New York spokesman declined to comment on how the proceeds of the issue would be used, adding "it is certainly our intention to be at that [well-capitalized] level at the appropriate time."

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