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The federal government has been urged to extend its AAA sovereign rating guarantee to mortgage-backed securities.
Last year, Treasurer Wayne Swan authorised the Australian Office of Financial Management (AOFM), which manages the government’s bond issuance program, to use $8 billion in proceeds from bonds sales to buy primary AAA-rated RMBS to shore up mortgage sector competition.
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More than $6.2 billion in AAA-rated RMBS have been purchased, mostly from non-bank lenders in 12 separate transactions, however Mr Swan’s office declined to comment on future plans to support the RMBS market once the $8 billion has been spent.
Australian Securitisation Forum chief executive Chris Dalton has urged the federal government to extend their guarantee once the remaining $1.8 billion has run out.
According to Dalton, a guarantee would have less of an effect on the government’s fiscal position, which has deteriorated over the past six months.
RMBS are currently quoted at a spread of around 250 basis points over the benchmark swap rate, compared with about 30 to 40 basis points before the credit crunch began.
In contrast, the AFOM has helped keep funding costs low by buying AAA-rated primary RMBS at spreads of 140 basis points above the benchmark.
