The Australian mortgage-backed bond market, which shut down last year in response to the global credit crisis, is showing tentative signs of life after Citibank raised A$500m (£243.8m).
However, the US bank, which owns a domestic mortgage business in Australia, had to offer investors in the triple A-rated notes a record high yield margin of 145 basis points above the Australian benchmark back bill swap rate (BBSW).
Last year, investors were offered a yield margin of just 16 basis points over BBSW.
Bluestone sold Australia’s last mortgage-backed bond more than five months ago, but offered a yield that was a then-record 108 basis points higher than BBSW.
Guy Debelle, an assistant governor at the Reserve Bank of Australia, said the absence of the securitisation market had major consequences for institutions such as non-bank lenders that relied heavily on it. “These lenders have curtailed their flow of new lending and, in some cases, have temporarily suspended lending at all but this decline has been met by other institutions so that the overall supply of housing credit has not been materially affected.”
But he also noted evidence of a recovery. “In recent weeks, there are signs that this process might be drawing to a close, with secondary market activity improving and indications that a number of primary issues will be coming to the market shortly.”
Roy Gori, chief executive of Citibank, the consumer business for Citigroup in Australia, said there had been strong interest for the securitisation from a broad range of investors. “We had a positive response to our soft sounding and tried to turn around a transaction as quickly as possible. What ordinarily would take four to six weeks has taken three to deliver.”
He said the sale had benefited from the Reserve Bank ’s efforts to improve liquidity in the financial system but that it was nevertheless a vote of confidence. “We believe this interest is a sign that the credit markets are beginning to clear.” But he said greater progress was needed before the markets reverted to “normality”.
Citibank sold the securities via Securitised Australian Mortgage Trust to 21 accounts from Australia and overseas. “The total book was three times oversubscribed, predominantly with real money investors and 25 per cent offshore clients,” Citibank said.
