AOFM's secondary activity continues role of supporting RMBS market
- Wednesday, 30 October 2013
On October 29 the Australian Office of Financial Management (AOFM) announced the sale of some holdings of residential mortgage-backed securities (RMBS) issued by ING Bank Australia in 2011 and 2012. The AOFM tells KangaNews the sale was conducted in order to assist secondary market price discovery.
The securities, which have a remaining weighted average life (WAL) of around 2.8 years, were sold at an effective margin of 80 basis points over the one-month bank bill swap rate (BBSW).
The amounts sold, in terms of amortised face value, are A$100.5 million (US$95 million) of the IDOL 2011-1 A1 tranche and A$77.1 million of the IDOL 2012-1 A notes. These tranches were issued at margins of 110 and 145 basis points over BBSW, respectively. ING Bank Australia's last RMBS was issued in August this year, with the A$920 million A1 tranche with a 2.9-year WAL pricing at 100 basis points over BBSW.
The margin on the securities sold by the AOFM is similar to the primary market pricing of the senior tranches of major bank RMBS priced this year (see table below). And market intermediaries say the sales show there is secondary demand for assets even though the market has not been heavily traded.
BENCHMARK RMBS DEALS BY AUSTRALIAN MAJOR BANKS IN 2013
| Issue date | Sponsor | Pool name | Total deal volume (A$M) | Class A note margin (BPs) | Class A note WAL (years) |
| 25 Feb 13 | Westpac Banking Corporation | WST Trust Series 2013-1 | 2,100 | 85/BBSW | 3.0 |
| 11 Mar 13 | Commonwealth Bank of Australia | Medallion Trust Series 2013-1 | 2,535 | 80/BBSW | 2.3 |
| 30 Aug 13 | Commonwealth Bank of Australia | Medallion Trust Series 2013-2 | 3,200 | 80/BBSW | 2.5 |
| 10 Oct 13 | Westpac Banking Corporation | WST Trust Series 2013-2 | 2,250 | 85/BBSW | 3.0 |
SOURCE: KANGANEWS OCTOBER 30 2013
Robert Verlander, head of debt markets securitisation at Commonwealth Bank in Sydney, says: "With more than A$28 billion of securitised product pricing this year, it is baffling that there has been very little secondary market turnover. We need a more vibrant secondary market before we will see securitised product elevated in perception as a more long-lasting and sustainable product in the marketplace."
John Claudianos, managing director and head of securitisation at Deutsche Bank in Sydney, agrees. "The sale is significant because the AOFM has sold non-major bank paper at a level well inside where it sold in the primary market, and at the level at which major bank primary market RMBS are being sold in 2013. It shows there is a proper bid at a decent level, which indicates a shift in the market and hopefully will bring about an improvement in liquidity."
Michael Bath, director, financial risk at the AOFM in Canberra, confirms that the debt management agency looks for a compelling reason when it sells any of its RMBS holdings, which will help the ongoing recovery of the market.
He tells KangaNews: "This action is all about helping price discovery. The level at which we sold the securities implies that the market has improved. So far this year there has been a lot of three-year WAL paper issued by Australian authorised deposit-taking institutions, in the primary market. Selling the IDOL tranches with a similar WAL is not compelling for us unless there is a story to tell on the price side that provides confidence that the market is improving."
Bath confirms that the AOFM has now sold its entire holdings of these IDOL notes. In November 2012 the debt management agency sold A$75 million of the IDOL 2012-1 A1 RMBS, at an effective margin of 126 basis points over BBSW, with a remaining WAL of around three years.
