Something interesting in today's The Australian 'Wealth' pull-out.
They interviewed the manager of the aussie arm of PIMCO about bonds as an investment.
In short, the bloke said that they loved Aussie residential backed securities. And waxed about the difference between the US and Aussie markets. You know the same argument that gets a good trolling on here.
BUT, there was one massive caveat: They only like pre-2008 mortgages. And that for the same reasons that get trolled out here too.
A good read and something for both.
Here's an excerpt:
"In Australia, what securities do you like most?
We like Australian residential mortgage-backed securities. It's important to distinguish between the Australian and US housing sectors. The Australian housing market has remained strong v the US for several reasons. First, Australia isn't saddled with the same oversupply problem the US had. In fact, many would argue the opposite. Second, the banks here were far more prudent in their lending practices, which is part of the reason why they fared so well in the global financial crisis. Third, most home loans in Australia are floating rate, so that when the Reserve Bank responded to the global slowdown by aggressively cutting rates, for the most part the benefits flowed directly and quickly through to borrowers. This was not the case in the US, where most home loans were fixed and so didn't receive any benefit from the US Fed's actions. There's also the issue of non-recourse loans, which are prevalent in the US and gave rise to the practice known as "jingle mail" (borrowers post their house keys back to the lender because they can no longer pay the mortgage).
That said, the Australian government stimulus effort directed at first home owners, combined with the extremely low interest rates of the past 18 months, make us very wary of bonds backed by mortgages originated throughout this period.
Instead, we prefer mortgages sourced from pre-2008."
