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Aussie securitisation storms ahead
[SYDNEY] Australia's securitisation market is running at its fastest pace in years, as demand for higher-yielding assets drives investors into asset-backed securities.
Four companies priced securitisations last week, adding A$3.825b (US$2.9b) to this year's total. At over A$10.5b since the start of the calendar year, asset-backed issues are running at almost double last year's pace, putting the market on course to rival pre-crisis annual totals.
"It is normal for there to be flurry of activity in February, following the Christmas break, but this does not usually follow through into March, while four deals in a single week is very unusual," said one DCM manager, who now predicts a relative lull as the recent supply is absorbed.
The Australian Government stepped in to support the securitisation market in the 2008 global financial crisis and issuance has yet to regain its pre-crisis peaks, reaching A$30.8b in 2014. At the current pace, however, it is on track to match the A$45b-$55b printed in 2005-07.
A syndication banker involved in a couple of last week's trades explained that demand for the asset class had grown among domestic and offshore investors who were on the hunt for better returns in a very low global yield environment. This has led to bigger orders from a larger pool of investors and has enabled deals to be substantially increased.
Australian residential mortgage-backed securities offer 80bp-90bp over bank bills, which is much juicier than other Triple A rated assets from sovereign, supranational and agencies, state governments and Commonwealth government bonds.
For example, Kangaroo bond market leader KfW's 2018s were trading around 10bp-15bp over swaps last week, New South Wales Treasury Corp's 2018s were quoted 20bp inside swaps and the Australian Commonwealth Government's 2018s were 45bp below.
Among last week's new issues were the year's second major bank RMBS offering as National Australia Bank's upsized A$1.75b trade confirmed the new benchmark margin for top-rated asset-backed notes at 80bp over one-month BBSW, 10bp above last August's post-crisis tight.
Similarly, sixth-largest Australian lender Bank of Queensland reaffirmed the 90bp spread for Class A paper from non-major banks with its enlarged A$900m sale, while non-bank lender Resimac printed the first non-conforming RMBS of 2015, which was increased to A$375m. Resimac's Class A notes come at 105bp over BBSW.
Meanwhile, Westpac issued an enlarged A$800m offering of prime auto receivable asset-backed securities, which priced 2bp inside the NAB RMBS at 78bp over BBSW.
Increased demand from local deposit-taking banks underpins domestic appetite. In particular, Australia's four major banks have put in much larger orders for this repo-eligible paper in recent times.
Australian banks now hold around 40 per cent of marketed ABS outstanding, compared with their sub-15 per cent share in December 2010.
Offshore demand has also picked up as foreign investors were allocated 43 per cent of last week's A$1.75b NAB RMBS.
Asia still leads the overseas bid, but European accounts have become more active, partly because of the reduced amount of ABS issuance on their continent.
The strong performance of Australia's residential mortgages and the high quality of collateral pools provide plenty of comfort to foreign investors. Australian RMBS are primarily fully documented prime mortgages - a world away from the US subprime market, which decimated the asset class when it collapsed.
Last week, Moody's reported that Australia's 30-day plus RMBS delinquency rate in December 2014 was 1.2 per cent, down from 1.4 per cent a year earlier and well below international levels.
"The Australian prime RMBS performance outlook for 2015 remains stable, with delinquencies and losses expected to remain low," Moody's stated, reassuringly.