Australian RMBS, ABS and Covered Bonds:2013 Outlook

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Date Published 2013
Primary Author Moody's Investor Service
Other Authors
Theme Mortgage Bonds, The Secondary Market
Country Australia


Our stable outlook for Australian RMBS and ABS for 2013 reflects our expectation of stable low levels of delinquencies and limited losses, underpinned by expected GDP growth of 2.5% to 3.5%, a continuation of the low interest rate environment, and a steady unemployment rate of 4.5% to 5.5%. Our stable outlook for covered bonds is based on (1) the sponsors’ strong financial standings; (2) strong sovereign ratings; and (3) the stable credit quality of residential mortgage collateral. In the RMBS sector, losses will be limited because of the amount of equity buffers available for mitigating losses in the event of obligor defaults. Expectations of stable house prices in 2013, loan seasoning, the long-term trend in house-price appreciation, and continued deleveraging support these buffers. In the ABS sector, losses are likely to increase only marginally, and remain low overall, as recovery rates stay just below their long-term average range of 50% to 55% . The expected slight drop in recovery rates is, in turn, based on the expectation of continued strength in new car sales in 2013. On the regulatory front, three governmental initiatives will help improve the development of the Australian securitization market. Specifically, each will individually promote, for transactions, (1) better alignment of interests between issuers and investors, (2) flexibility for issuers to retain greater proportion of their deals, and (3) more transparency in collateral reporting. We further expect issuance for both RMBS and ABS to increase in 2013 from 2012, driven partly by tightening spreads, a development which makes it more economically viable for originators to issue both types of securities. We also expect robust covered bond issuance in 2013 as the total amount of issuance to date only constitutes around 30.5% of the total issuance capacity of the issuers.

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