Margins wider for conforming and non-conforming RMBS

Margins widened in both the prime and non-conforming segments of the residential mortgage-backed securities market last week, when Bluestone and Wide Bay completed transactions.

On Friday Wide Bay priced a A$300 million RMBS transaction, WB Trust 2014-1. It will pay 100 basis points over the one-month bank bill swap rate on the $270 million of A notes, which have a weighted average life of 3.3 years.

Pricing on the $19.5 million of AB notes, which have a weighted average life of 5.9 years, was 185 bps over the swap rate. Pricing on the B, C, and D notes was not disclosed.

The last prime issuer in the market was Firstmac in September, which priced the A1 notes of a $700 million transaction at a margin of 90 bps. In August Commonwealth Bank priced the top tranche of a $4 billion deal at a margin of 70 bps.

A couple of factors may have led to Wide Bay paying a higher margin, besides a general shift in market sentiment. The weighted average life of the A notes, at 3.3 years, is outside the two to three year maturity "sweet spot".

Another factor is that Wide Bay has a portfolio that is highly concentrated in its home state of Queensland, which investors may have seen as a risk.

Earlier in the week, non-conforming lender Bluestone priced the A1 notes of a $209.3 million issue at a margin of 120 bps. Earlier in October Pepper Australia paid a margin of 95 bps on the A1 notes of a $400 million non-conforming RMBS issue.