KeyCorp is the first bank to come to market with a new hybrid form of capital security that could herald a cheaper way for banks to raise Tier 1 capital.

This week the Cleveland-based banking company issued $250 million of "bullet" capital securities-a form of trust-preferred securities that do not have a traditional call option - with a yield of 6.99%, or 137.5 basis points over 30-year Treasuries. The issue, marketed to institutional investors, was oversubscribed by two times.

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