NEW YORK (Bloomberg) — Citadel Investment Group LLC, the hedge fund controlled by Kenneth Griffin, sold $500 million of five-year notes yesterday in the first-ever sale of bonds by a hedge fund, according to a person familiar with the transaction.

The fund sold the notes at a yield of 1.90 percentage points more than similar-maturity Treasuries, said the person, who declined to be identified because the sale is private.

The average yield premium, or spread, on similarly rated notes is 1.22 percentage points, according to data compiled by Merrill Lynch & Co.

The sale by Chicago-based Citadel may allow it to rely less on financing from Wall Street investment banks. The bonds will be sold through a medium-term note program.

Medium-term notes are unsecured, continuously offered obligations with maturities ranging from nine months to 40 years. Each note issue is drawn down from the programme level, which in Citadel’s case is $2 billion, according to Fitch Ratings. The notes are frequently used by the world’s biggest financial institutions, including Citigroup Inc. and Bank of America Corp.

Bryan Locke, a spokesman for Citadel, declined to comment. Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. are managing the transaction for the hedge fund, which has $12.8 billion of assets.

Fitch and Standard & Poor’s assigned investment-grade ratings, Fitch at BBB+ and S&P one level lower at BBB. Debt rated above BB+ is considered investment grade.

Both are the first public debt rankings for a hedge fund, unregistered pools of capital from wealthy individuals and institutions that allow managers to participate significantly in the gain or loss of the money invested.

Citadel, founded in 1990, keeps 20 percent of all trading profits and charges all expenses to investors.

Citadel founded CIG Re in 2004 and went on to found New Castle Re in the wake of the record 2005 hurricane season.

Citadel branched into reinsurance because it was seen as an uncorrelating complement to other investment strategies the group employs.

About ten percent of its assets are invested in reinsurance, conducted through its Bermuda-based companies.