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Saturday, 27 September 2008
Australia to Buy A$4b Mortgages to Revive Market
Australia will spend A$4 billion (HK$25.8 billion) buying residential mortgage-backed securities to revive a debt market frozen by the global credit crunch. PDF
Australia will spend A$4 billion (HK$25.8 billion) buying residential mortgage-backed securities to revive a debt market frozen by the global credit crunch.
The Australian Office of Financial Management (AOFM) would invest in two separate operations of as much as A$2 billion each, Treasurer Wayne Swan said yesterday.
“We are doing this because the [mortgage securities] market has dried up as a consequence of difficulties in global financial markets,” Mr Swan said. “There is a world of difference between this development and what is being debated in the US.”
Mortgage bond sales have slumped 85 per cent to A$2.5 billion a quarter since the middle of last year as international investors retreated from property lending after losses and write-downs from the US subprime collapse swelled to US$522 billion.
That has crippled the ability of smaller banks including Bank of Queensland and Aussie Home Loans to make loans.
Australian short-term funding costs surged this year to the highest since at least 1999, based on the spread between interbank lending rates and government bonds.
“It’s an extraordinary response in extraordinary times,” said Shane Oliver, the head of investment strategy at AMP Capital Investors.
“The move will provide extra funding, and may be an attempt to get funding costs down and apply further pressure on banks to pass on any rate cuts.”
Mr Swan said the government would issue “directions” to the AOFM - the government agency that manages the nation’s debt - and the Treasury Department would develop restrictions on who would be able to use the securities and how much they could buy. That could take “a number of weeks” to sort out.
Small lenders, which would use the securities to provide mortgages, include Aussie Home Loans, Wizard Home Loans, Bendigo and Adelaide Bank and Bank of Queensland. Such lenders do not have large deposits, like bank lenders, to fund their mortgages.
“All smaller lenders have been unable to provide new mortgages at competitive rates for at least 12 months,” Aussie founder John Symond said. “This will help address that shortage.”
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Australia to Buy A$4b Mortgages to Revive Market
Bloomberg in Sydney
27 September 2008
Australia will spend A$4 billion (HK$25.8 billion) buying residential mortgage-backed securities to revive a debt market frozen by the global credit crunch.
The Australian Office of Financial Management (AOFM) would invest in two separate operations of as much as A$2 billion each, Treasurer Wayne Swan said yesterday.
“We are doing this because the [mortgage securities] market has dried up as a consequence of difficulties in global financial markets,” Mr Swan said. “There is a world of difference between this development and what is being debated in the US.”
Mortgage bond sales have slumped 85 per cent to A$2.5 billion a quarter since the middle of last year as international investors retreated from property lending after losses and write-downs from the US subprime collapse swelled to US$522 billion.
That has crippled the ability of smaller banks including Bank of Queensland and Aussie Home Loans to make loans.
Australian short-term funding costs surged this year to the highest since at least 1999, based on the spread between interbank lending rates and government bonds.
“It’s an extraordinary response in extraordinary times,” said Shane Oliver, the head of investment strategy at AMP Capital Investors.
“The move will provide extra funding, and may be an attempt to get funding costs down and apply further pressure on banks to pass on any rate cuts.”
Mr Swan said the government would issue “directions” to the AOFM - the government agency that manages the nation’s debt - and the Treasury Department would develop restrictions on who would be able to use the securities and how much they could buy. That could take “a number of weeks” to sort out.
Small lenders, which would use the securities to provide mortgages, include Aussie Home Loans, Wizard Home Loans, Bendigo and Adelaide Bank and Bank of Queensland. Such lenders do not have large deposits, like bank lenders, to fund their mortgages.
“All smaller lenders have been unable to provide new mortgages at competitive rates for at least 12 months,” Aussie founder John Symond said. “This will help address that shortage.”
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