RMBS spreads widen for ME Bank

The second sale of residential mortgage-backed securities for the year by ME Bank is helping to clarify the rising cost of funds for niche providers of home loans.

Yesterday, ME Bank finalised pricing on A$622 million of RMBS, revealing that the spread paid by the bank over a cost-of-funds benchmark has gone up 25 per cent since it last sold RMBS in March.

The bank will pay 125 basis points over the one-month bank bill swap rate for the A$621.7 million of class A bonds, its latest issue of RMBS for the SMHL Securitisation Fund 2011-2. The bonds have an AAA rating from Standard & Poor's and from Fitch, and a weighted average life of three years.

In March, ME Bank paid 100 basis points over swap for $934 million of class A notes in SMHL 2011-1, which had a weighted average life of 2.9 years.

The pricing on the $25.5 million of AB notes in the latest issue, which are rated AAA and have a weighted average life of 5.3 years, was 210 basis points over swap.

Pricing on the $46 million AB tranche in the March issue, which had a weighted average life of 4.5 years, was 170 basis points over swap.

SMHL 2011-2 raised a total of $665 million. The deal was increased from the launch size of $500 million.

The Australia Office of Financial Management bought $175.2 million of the A bonds and $25.5 million of the AB bonds.

The AOFM last invested in RMBS in July, in a deal for Bendigo and Adelaide Bank. The Bendigo deal was also the last RMBS by any issuer outside major banks.

Westpac and NAB have helped re-open the RMBS markets in recent weeks.