Australia out of line on covered bonds

APRA has ruled out covered bond issuance in Australia but this leaves Australia looking a little out of line against Europe, where covered bond issuance has been undertaken for centuries, and against the UK and US, which have both introduced legislation to allow issuance.

Now that Australia has deposit insurance (albeit only to $20,000) covered bond issuance could perhaps be reconsidered.    

While the debate goes on in Australia, the RMBS market is simply getting on with business.

RMBS issuance (excluding bank RMBS creation for repo purposes) for year to date now totals between A$4.3 billion or even as much as $4.8 billion, if private placements and re-issues are counted. In any event, this is much more than the $1.9 billion figure that was being bandied about during the week.

Moreover, RMBS issuance in July totalled $1.7 billion alone, with two issues being undertaken last week.

Members Equity issued $300 million of prime RMBS and Bank of Adelaide and Bendigo issued more than $500 million of prime RMBS. The former issue achieved pricing of 120bps over bank bills on the 'AAA' rated senior tranche, while the latter issue set a new post credit crunch benchmark of 110bps over.

What would bring a lot of confidence back to the sector now would be a large prime RMBS issue from one of the major banks. A deal pitched at say, $500 million, oversubscriptions to $1.0 billion and pricing at sub-90 bps over bank bills, would not surprise.