Mortgage-Bond Sales Surge From Busiest Half Since 2007: Australia Credit
Mortgage Bond Sales Surge as Debt Markets Shut
Ian Waldie/Bloomberg
A pedestrian walks past property listings displayed in the window of a real estate agency in Sydney, Australia. The market is reviving even after home prices slid 1.7 percent in the first quarter from the previous three months, the biggest drop since the third quarter of 2008, government data published in May showed.
A pedestrian walks past property listings displayed in the window of a real estate agency in Sydney, Australia. The market is reviving even after home prices slid 1.7 percent in the first quarter from the previous three months, the biggest drop since the third quarter of 2008, government data published in May showed. Photographer: Ian Waldie/Bloomberg
Mortgage bond sales in Australia are accelerating from the busiest half since 2007, with investors snapping up higher-yielding notes while other corporate debt offerings slow amid Europe’s sovereign crisis.
Bendigo and Adelaide Bank Ltd. (BEN), Heritage Building Society Ltd. and Resimac Ltd. have priced a combined A$2.05 billion ($2.19 billion) of residential mortgage-backed securities this month, after A$12.4 billion of the debt was offered in the six months to June 30, according to data compiled by Bloomberg. Before Rabobank Nederland’s domestic unit priced A$800 million of notes today there were no sales of senior unsecured bonds in Australia since July 8, the longest stretch in more than two months, Bloomberg data show.
“Australian RMBS may be viewed as a discrete asset class that’s separate from the volatility” caused by rising sovereign risk in Europe, said David Goodman, Sydney-based Westpac Banking Corp.’s director of asset-backed securities. “It’s performed very well, so people are clearly buying.”
Investors are seeking returns as concern that Europe will fail to contain the debt crisis and a weakening outlook for domestic growth pushed Australia’s 10-year government bond yield to the lowest level in 10 months. Australian lenders have raised more than A$9 billion this year from mortgage-backed debt that has no government support, while issuers in the U.S. sold less than $550 million of similar bonds since July 2008, Bloomberg data show.
Heritage sold A$800 million of bonds on July 11 in what the lender said was its biggest-ever RMBS sale and first public offering since 2006. The Toowoomba, Queensland-based lender priced its main class of notes to yield 110 basis points more than the bank bill swap rate, according to a regulatory filing.
‘Market Intelligence’
“Our market intelligence suggested there was sufficient interest amongst potential investors,” said John Minz, chief executive officer of Heritage, in an e-mailed response to questions. “One of the key objectives for this deal was the successful placement of subordinated tranches to external interests.”
The junior portions of residential mortgage bonds are more vulnerable to losses on the underlying loans, as they act as a buffer protecting the most senior notes from any default.
Bendigo and Adelaide Bank, the Australian regional lender, priced A$1 billion of notes on July 14, including 20 billion yen of securities, the first time an Australian issuer has sold mortgage bonds in the Japanese currency, according to Moody’s Investors Service. It paid 425 basis points more than the bank bill swap rate on the lowest-ranking portion of notes and a spread of 105 basis points on the main class, according to a stock exchange filing.
‘Broadening Demand’
“In a further sign of broadening demand, we have seen different issuers and innovative structures come to market and investors willing to look further down the capital structure,” Westpac’s Goodman said.
Australia’s mortgage bond market shut amid the U.S. subprime collapse in 2007. Relative yields on the debt, which averaged 20 basis points before Lehman Brothers Holdings Inc. failed in 2008, surged to as high as 450 basis points, according to the Reserve Bank of Australia. Spreads have narrowed to 125, the central bank said in May.
Sales of prime securities peaked at A$57 billion in 2006 before tumbling to A$13.4 billion in 2008, Standard & Poor’s data show. The first six months of 2011 was the busiest half since 2007, according to Westpac.
The Australian government has bought A$13.6 billion of the debt since 2008 as part of a support package to help smaller lenders obtain funding, according to information on a government website.
Home Prices
The market is reviving even after home prices slid 1.7 percent in the first quarter from the previous three months, the biggest drop since the third quarter of 2008, government data published in May showed. Prices fell 0.3 percent in both April and May, according to real estate researcher RP Data.
Australian mortgage holders grappling with the highest benchmark interest rate in the developed world may get some respite as traders bet the central bank will cut the official cash rate of 4.75 percent.
There is an 70 percent chance RBA Governor Glenn Stevens will cut the benchmark rate a quarter percentage point in October, cash-rate futures showed at 5:49 p.m. in Sydney today.
Economic Growth
The central bank, which has kept the rate unchanged since November 2010, had scope to extend the pause because risks posed by Europe’s debt crisis and a slower-than-forecast domestic recovery eased inflation concerns, minutes of its July 5 meeting published yesterday show.
Australia’s economy shrank 1.2 percent in the first quarter, the biggest contraction in two decades, after flooding in Queensland state slashed export earnings. The RBA signaled this month that growth this year may be weaker than its earlier forecast of 4.25 percent.
Inflation-indexed note yields show investors expect consumer prices will rise an annual 2.76 percent for the next 10 years.
Australia’s 10-year government bond yield rose 7 basis points today to 4.96 percent, or 207 basis points more than similar-maturity Treasuries. The Australian dollar, the world’s fifth-most traded currency, traded at $1.0732 as of 5:51 p.m. in Sydney.
Debt Sales
Westpac and Volkswagen Financial Services Australia Pty both priced notes on July 8, Bloomberg data show. Debt sales in the nation have totaled A$3.5 billion this half, not including asset-backed notes, compared with A$4.4 billion in the same period of last year, the data show.
The average yield on Australian corporate bonds dropped to 6.1 percent on July 18, the lowest since 2006, Bank of America Merrill Lynch data show.
Resimac, a Sydney-based non-bank lender, priced A$250 million of bonds backed by non-conforming home loans on July 14 in the second sale of such securities in the nation since the global credit freeze. Investors placed more bids for most classes of notes than Resimac was seeking to sell, the lender said in a statement at the time.
More than a third of the underlying loans are to borrowers with an impaired credit history, while 71.4 percent are not fully documented, according to an e-mailed statement from Moody’s. The weighted average size of each mortgage as a proportion of the house value is 71.5 percent, according to the risk assessor.
Home Loans
Home loans more than 30 days late hit a record 1.79 percent in the first quarter, Fitch Ratings said on May 26, and “low- doc” loans that were more than 30 days overdue climbed to 6.74 percent.
In the U.S., 31 percent of the underlying home loans on non government-backed RMBS were behind on payments by 30 days or more as of June 30, according to a Bloomberg non-agency database of more than 12 million active loans.
“We’re starting to see a bigger divergence in Australian collateral performance between regional or smaller lenders and the major banks,” said Nick Bishop, a portfolio manager in Sydney at Aberdeen Asset Management Plc. “Overall though, it’s a deteriorating but still sound picture.”
To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net.
Rate this Page