australias debt...she'll be right.., page-51

Menta,

To be honest, I will have to look at the latest China reports - been busy with Eu/EZ/ECB and Russia.

You have seen the Bloomberg article - did you see this one too?

Aussie credit is booming
Christopher Joye

Analysis

Australian credit investments are booming. On the back of the lowest borrowing rates in history and generally benign conditions across most asset classes, the cost of issuing Australian corporate bonds and selling home loans via portfolios of residential mortgage-backed securities (RMBS) is plumbing new lows.

In the words of one major bank analyst on Tuesday, “volatility is absolutely crushed for now with the VIX Index looking like a pancake”. Volatility is a measure of the probability of loss in financial markets, with the Chicago-traded VIX index tracking the volatility of US equities.

This favourable sentiment is allowing banks and companies to raise money to fund loans at some of the cheapest levels since the global financial crisis. It is also delivering substantial capital gains to those who have invested in corporate debt and RMBS when credit spreads, which measure the cost of these securities, were much wider.

Winners include retail punters who have purchased the many new debt securities listed on the Australian Stock Exchange by major and regional banks in recent years. Indeed, there have been interesting developments in the pricing of ASX bonds vis-a-vis their wholesale over-the-counter contemporaries. Another beneficiary will be the Commonwealth government, which still owns over $7 billion of RMBS that it bought during the GFC at significantly lower prices.

Seeking to capitalise on the encouraging climate, Westpac launched a $750 million RMBS issue on Monday, which may be upsized to north of $1 billion. The highest-ranking class “A” notes, which account for 92 per cent of the overall issue, are expected to price at less than 78 basis points (or 0.78 per cent) above the one month bank bill swap rate.
Resimac follows suit

Also on Monday, the non-bank lender Resimac launched a $500 million RMBS transaction on the heels of Westpac’s deal. Market sources suggest that more transactions are likely to be forthcoming in the next week.

The Reserve Bank of Australia’s Guy Debelle published a chart in April summarising RMBS pricing over time. It shows that the senior ranking “prime” tranches of RMBS deals have on occasion priced at between 100 and 150 basis points above the bank bill rate in the years after the GFC (compared to the 78 basis points Westpac’s deal will likely trade at).

http://www.afr.com/r/2009-2014/AFR/2014/05/27/Photos/3e894e48-e536-11e3-9fe5-3f8d89873345_rmbs--646x500.JPG

Through the Commonwealth Treasury’s subsidiary, the Australian Office of Financial Management, the government has been gradually selling down its RMBS portfolio at prices above its original entry level.

Since March 2012 the AOFM has divested around $1 billion of the more than $15 billion of RMBS it purchased to support system liquidity between 2008 and 2011. But with over $7 billion remaining on the government’s books, more RMBS profits may come. It’s a mixed blessing for some inside the AOFM who opposed the RMBS investment policy and have been eager to talk down the government’s profits.

Another development has been the growing institutionalisation of the ASX debt market, which used to be the exclusive domain of retail punters. Large “crossings” of ASX bonds valued at between $3 million and $10 million have become increasingly common. These transactions are typically traded between institutional investors.

And the risk premium that ASX bonds used to price at relative to wholesale equivalents, which gave retail investors extra yield, has started to disappear.

This may be a function of participants anticipating the ASX’s attempt to encourage more so-called “fungibility”, or portability, between bonds traded in the over the counter and listed exchange settings.

source: http://www.afr.com/p/blogs/christopher_joye/aussie_credit_is_booming_jLemvyCkEvthNRFyxC66XI

Only a short note from me: Australian banks continue to tap international capital markets for cheap funding, issuing COCOs.

According to Goldman: "monetary conditions are easier than any time since GFC, in USA, Europe and China".

Will post later about the ECB and the widely expected June meeting.