AIB, the State's largest bank, is in final preparations to sell the first Government-insured bonds under the State bank guarantee.

The bank may sell two-year euro bonds at a yield of between 0.5 and 0.6 per cent more than the benchmark mid-spread rate - the base cost on which bonds are priced - according to Bloomberg.

The proposed yield is 10 times the 0.5 per cent spread paid by France on guaranteed loans raised to provide funding to its banks.

A spokesman for AIB declined to comment.

The bank will be the first Irish bank to raise loans in the debt markets using the guarantee to sell Government-insured bonds and medium-term loan notes covering the life of the guarantee, which expires on September 29th, 2010.

There is a planned sequence of bond sales by the Irish banks in a process co-ordinated by the Department of Finance which will allow each bank the opportunity to tap the funding markets. The banks have each agreed not to seek more than €2.5 billion so that the larger lenders do not absorb a greater share of the funding likely to be available for all institutions.

AIB will be followed by Bank of Ireland, Irish Life Permanent and Anglo Irish Bank. The two building societies, EBS and Irish Nationwide, will then sell bonds in a bid to raise longer-term funding.

The series of debt sales mirrors a similar move in the UK, where five banks have issued government-guaranteed debt at spreads of 0.18 per cent and 0.25 per cent.

Deutsche Bank, HSBC and French bank Société Générale are managing the sale of the guaranteed bond for AIB, according to Bloomberg, which cited a banker involved in the sale process.

AIB was last week assigned a top AAA rating to €15 billion of Government-guaranteed debt at the bank by two rating agencies, Standard Poor's and Fitch, although the bank will try to raise only part of this amount.