Commonwealth Bank of Australia priced the nation’s largest offering of mortgage-backed bonds since the global financial crisis as investors seek short-dated assets to protect against interest-rate rises.
Australia’s largest bank issued A$3.2 billion ($2.9 billion) of notes, the biggest sale of debt backed by home loans since 2007, according to data compiled by Bloomberg. CBA priced its A$2.011 billion top tranche at 80 basis points more than swaps, equaling the tightest spread on such securities with a similar maturity since the crisis, the data show.
Analysts forecast Australian interest rates will fall to 2.25 percent next year before rising to 2.75 percent by the end of the first quarter of 2015, according to a Bloomberg News survey this month, while the U.S. Federal Reserve signaled it could slow bond purchases later this year. Offerings of notes backed by residential mortgages surged to A$16.7 billion since Dec. 31, 25 percent more than issuance in the whole of 2012, data compiled by Bloomberg show.
“In an interest-rate increasing environment RMBS is the place to be,” said Mat McCrum, a Melbourne-based investment director at Omega Global Investors Pty which has A$3.2 billion under management. “The interest rate profile is very good for the yield and risk as RMBS pays down very quickly at the short end of the structure.”
CBA’s largest portion of notes has a 2.5-year weighted average life, Bloomberg-compiled data show. The borrower also priced a A$525 million class of RMBS that has a 3.5-year average life at 90 basis points more than swaps and A$400 million of notes with a 4.5 percent coupon, the data show.
The company issued a further A$264 million of securities on which pricing was not disclosed.