After a bumper year in the residential mortgage-backed securities market, with record issuance for some non-ADI lenders and the tightest margins in over a decade, issuers have been cautioned that market conditions will not be as good in 2022.
Speakers at yesterday’s Australian Securitisation Forum’s 2021 Conference said spreads had already widened by about 20 basis points from their best pricing and are likely to widen further by another 10 bps or more.
Factors contributing to this change in the market’s dynamics include the re-entry of banks into the RMBS market after a 15-month period when they drew on the Term Funding Facility and APRA’s policy directive on the Committed Liquidity Facility.
APRA has told ADIs to reduce their CLF balances to zero by the end of next year. Banks have been using RMBS as collateral for their CLF accounts and as they wind up their positions they will be much less active in the RMBS market.
Speaking at the ASF conference, Fabrice Guesde, the Asia Pacific head of structured credit at Natixis, said: “We at about 100 bps over BBSW at the moment but looking at the US collateralised loan obligation market as a benchmark, pricing is probably headed for 130 bps.
“We have seen massive demand this year and we are not worried about demand in the year ahead. But there will be repricing.”
Guy Volpicella, the head of structured funding at Westpac, said the bank expected to get back to a pre-COVID funding situation, with term funding at the upper end of its A$30 billion to $40 billion range. One-third of that would be domestic issuance and two-thirds offshore.
Firstmac chief financial officer James Austin said he agreed funding would return to pre-COVID levels.
“Markets have been artificially tight. We are transitioning from a great market to a good market. Margins that are 20 basis points wider are fine for us.”
Austin said COVID was a breakthrough for non-bank lenders because investors who would normally only buy ADI-issued RMBS were buying non-ADI securities.
“They have put the resources into checking us out and we have worked hard to demonstrate the strength of our program,” he said.
Guesde said another feature of the securitisation market during COVID was the emergence of new asset classes, non-resident RMBS and self-managed superannuation fund loan securitisation. He expects issuance to continue in those segments.