The Australian government is trying to cool down the prices of mortgage-backed securities, in an effort to reduce funding costs for smaller banks and lenders, which will lead to increased securitization market competition.
While signs of recovery have returned to the securitization market since it stalled two years ago, some issuers have expressed dismay that pricing has not fallen in line with the economic recovery.
 |
This means that securitizations, an important funding source for smaller lenders, remain at a high-cost option, making it harder for smaller lenders to compete with bigger banks, which have access to overseas borrowing markets and have lower-cost deposit options.
The Australian Office of Financial Management (AOFM), the government’s funding arm, said that the mortgage-backed securities market had improved significantly since 2008 when purchasing of bonds started as part of the A$16-billion government programme to help support the securitisation market.
It added that the government’s effort had helped cool down pricing during the height of the market freeze. But the pricing of mortgage securities remained at current levels for a long period.
”Given the high credit quality of Australian residential mortgage-backed securities and the program objectives, the AOFM is willing to invest at tighter levels but this will continue to be balanced with the desire to encourage continued private sector participation,” said AOFM.
”This change in approach is directed towards bringing about lower pricing in the primary RMBS market, which will further support competition for residential mortgage lending and support lending to small business.”
AOFM said that it would bid for the entire six-year share of A$150 million at an indicative range of 110 to 130 basis points higher than the bank-bill swap rate.
”It seems to be a very clear attempt to drive down pricing in the market,” said Philip Bayley, a credit market specialist at ADCM Services.
In recent months, the securitization market has rebounded rapidly, with over A$9.8 billion of prime RMBS issued since 2009 when the government said it would double its original investment programme.