Australia Offloads Fewer RMBS Than Planned at First-Ever Auction

Australia sold a smaller portion of its A$4.6 billion ($3.6 billion) in mortgage bond holdings than originally planned at its first-ever auction of the securities.

While the Australian Office of Financial Management has previously said it intends to sell from A$300 million to A$500 million per month in amortized face value terms, it accepted bids for just A$160.5 million of the residential mortgage-backed securities at its inaugural sale Wednesday.

The government announced last month it’s aiming to offload by mid next year all the RMBS it bought as part of a A$20 billion program created in 2008 to stabilize the market and help smaller lenders fund themselves. Australia officially ended the scheme in 2013 after a market recovery obviated the need for further state support.

“On first glance, the result looks fairly weak,” Westpac Banking Corp. strategists David Goodman and Rob Thompson wrote in a note. “Given the global backdrop this week, perhaps this is unsurprising. However, there are several reasons to interpret the outcome more positively.”

The Sydney-based analysts said the pricing on those notes that did sell was “relatively tight” and also pointed to the A$1.3 billion of bids received.

The AOFM has said it has the right to exercise discretion on volumes and can sell less than A$300 million if bids don’t exceed their reserve prices.

The government has worked hard to support RMBS in Australia and “the fact that they are not ‘spraying’ the secondary market, as some had feared, should therefore be received positively by investors and primary issuers,” according to Goodman and Thompson.

Wednesday’s auction saw buyers purchase notes issued by ING Groep NV’s Australian unit and AMP Bank Ltd., while no bids were accepted for the Suncorp Group Ltd. securities on offer. The notes sold amounted to A$226 million in original face value terms, about one third of the A$688 million offered.

The next sales are scheduled for July 14 and Aug. 18.