RBA kick-starts bond market
(24 April 2008 – Australia) The Reserve Bank of Australia has attempted to kick-start the local mortgage backed bond market by buying up $1.1 billion in bonds.
The RBA took $780 million in mortgage bonds onto its books on the 21st of April, following a $320 million investment on the previous Friday.
The Reserve Bank yesterday completed 'repurchase'' deals at less than 0.25 per cent above the cash rate, making it profitable for banks to buy mortgage-backed bonds and then sell them to the Reserve Bank, with an agreement to buy them back.
Added incentive to the deal is that the RBA is now offering to accept these bonds for up to one year.
The primary impact of a stagnant mortgage backed bond market is on non-bank lenders. While bank lenders have the capability to lend on the back of bank deposits, non-bank lenders have a heavier reliance on mortgage backed bonds.
The share of the market for non bank lenders has decreased from more than 30 percent to less than 10 percent since the sub-prime mortgage crisis hit last August.
Despite the RBA indicating that it is not correct to lump Australian mortgage securities in with US sub-prime equivalents, many investors trying to offload Australian mortgage securities have been forced to offer a yield of two percentage points more than the official cash rate in order to find an investor.
At present, the bank has only about $2.1 billion in mortgage-backed bonds on its books, but this may grow if it keeps entering repurchase agreements for these bonds over longer terms.
The Reserve Bank yesterday completed 'repurchase'' deals at less than 0.25 per cent above the cash rate, making it profitable for banks to buy mortgage-backed bonds and then sell them to the Reserve Bank, with an agreement to buy them back.
Added incentive to the deal is that the RBA is now offering to accept these bonds for up to one year.
The primary impact of a stagnant mortgage backed bond market is on non-bank lenders. While bank lenders have the capability to lend on the back of bank deposits, non-bank lenders have a heavier reliance on mortgage backed bonds.
The share of the market for non bank lenders has decreased from more than 30 percent to less than 10 percent since the sub-prime mortgage crisis hit last August.
Despite the RBA indicating that it is not correct to lump Australian mortgage securities in with US sub-prime equivalents, many investors trying to offload Australian mortgage securities have been forced to offer a yield of two percentage points more than the official cash rate in order to find an investor.
At present, the bank has only about $2.1 billion in mortgage-backed bonds on its books, but this may grow if it keeps entering repurchase agreements for these bonds over longer terms.
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