Small lenders face soaring mortgage bond prices

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Continued market volatility continues due to uncertainty over falling commodity prices and the slowdown in China, which is certainly impacting the cost of bank funding.

Simon Lewis, Suncorp

AOFM chief executive Rob Nicholl told Fairfax Media that there was no “buyer strike” in residential mortgage backed securities (RMBS), but the “market dislocation “had led him to hold onto the assets until he could get a better price.

However, several deals are currently on the market, including another round of the CBA’s Medallion RMBS series, and non-bank lender Pepper plans to issue RMBS in March.

“We are looking for a price and we hope that a transaction hits the market in February,” said Matt Lever, director of Commonwealth Bank.

CBA issued RMBS AAA at 80 basis points in February 2015, then at 90 basis points in September. Firstmac managed to issue $ 1 billion in May at 98 basis points on BBSW for AAA RMBS. When it issued $ 500 million in November, the price had risen significantly to 117 basis points, especially since a smaller amount would have to be offered at a lower price.

Pepper Group co-chief executive Patrick Tuttle said he plans to issue RMBS in March. The market’s return is that there is enough pent-up demand to buy its bonds, but they will have to pay a higher price for the funds.

Suncorp said it expects to be able to tap the RMBS market again, but market volatility is pushing prices up.

“Continued market volatility continues due to uncertainty due to falling commodity prices and the slowdown in China, which is certainly impacting the cost of bank funding,” said Simon Lewis, director Suncorp Finance Executive.

“We remain confident that we will be able to access the RMBS market in 2016 and continue to maintain an open dialogue with investors to gauge appetite.

Australia’s largest lenders have been successful in maintaining access to finance, albeit at higher costs due to their high credit scores.

Australia’s Big Four banks have so far raised around $ 6 billion in the domestic bond market, the latest three-year bond issue of $ 2.25 billion by NAB with a margin of 98 basis points on the discount rate.

The Big Four and Macquarie Bank have raised about $ 11.7 billion in the foreign bond market this year, including about $ 6 billion in AAA-rated “covered bonds”, the cheapest source of funding because banks promise home loans as additional collateral. to investors.

ANZ, CBA and Westpac have all issued covered bonds in overseas markets to reduce the impact of rising funding costs. Meanwhile, on Thursday, Macquarie Bank finalized its very first AAA covered bond, raising 500 million euros ($ 778 million).

While smaller banks are able to issue covered bonds, there is no market for non-AAA rated bonds, limiting this option to only larger banks.


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