COPUBLISHED
Q+A
How strong has offshore interest in Australian RMBS been recently and from where is it coming? We can break down offshore interest into several categories. Within the 144A space, there is a substantial amount of appetite for Australian issuers offering US dollar tranches. This is a deep investor base in its own right. J.P. Morgan was a joint lead manager and US dollar arranger on the Resimac 2020-1 deal. This transaction was very
issuance in 2020 as these issuers have generally been beneficiaries of higher deposits, due to the increase in saving rate that has resulted from COVID-19. In addition, the RBA’s term funding facility has offered Australian ADIs [authorised deposit-taking institutions] the ability to access three-year funding from the RBA at a rate of 0.1 per cent, so there was very little incentive for banks to issue RMBS in 2020. Nonbank lenders, by contrast, have increased volume
dropped substantially, largely thanks to government fiscal measures and the reopening of the Australian economy. How have Australian house prices performed during the pandemic era so far? How has the story evolved later in 2020 and what is the forecast for 2021? Australian house prices have remained relatively stable, with only a small drop in national house prices seen since
“Cross-currency basis-swap costs have been steadily dropping and were at decade-low levels in many cases, which lowers the landed cost of borrowing in other currencies for Australian issuers. It is likely that we will see more issuers targeting US dollar issuance in either or both Reg S and 144A format.”
successful and should pave the way for other issuers looking to expand into this market in the months and years to come. Separately, we have seen significant interest from Japanese investors, primarily banks. While this theme is not a new one, the level of participation in 2020 has been very healthy and we expect Japanese interest to increase as more issuers consider yen-denominated tranches in the future. Away from Japan, we have also seen some interest from other parts of Asia including Singapore and Hong Kong, while European investors also remain active participants in Australian RMBS. Once again, while this trend is not new we have seen a lot more demand from European accounts in recent months. How did issuance and demand break down between bank and nonbank issuance in 2020 and what were the drivers? It was the year of the nonbanks. We saw hardly any Australian bank RMBS
substantially over the course of the last three years and these entities have remained frequent issuers in the RMBS market. What trends have you identified when it comes to COVID-19related mortgage deferrals and delinquencies in Australia? Looking at the APRA [Australian Prudential Regulation Authority] statistics, around 10 per cent of ADIoriginated loans were granted payment deferrals, with the majority of these deferrals coming in May. This dropped to 3.3 per cent by the end of October. We expected the percentage of deferrals to drop significantly in October and November because most deferrals that were granted in April and May were for a period of six months. We will likely see a further decline in the percentage of deferrals, to manageable levels, for both the banks and nonbanks. The amount of outstanding COVID-19-affected borrowers has
March 2020. This is a good result given the significant drop in GDP and the increase in unemployment during this period. More recently, we have started to see house prices rebound into positive territory. This is partly driven by lower mortgage rates but arguably the ‘workfrom-home’ factor is playing a large part here too. Many homeowners are looking to upgrade due to the increased amount of time they expect to spend at home compared with the workplace. J.P. Morgan anticipates some potential for further moderate growth, in the range 3-5 per cent in 2021, with regional areas improving more than metro areas due to a continued focus on working from home. ■ FOR MORE INFORMATION PLEASE CONTACT:
Stephen Magan Executive Director, Securitised Products Group J.P. Morgan Australia and New Zealand +61 2 9003 8362 stephen.s.magan@jpmorgan.com
DISCLAIMER: This material was prepared by the Securitised Products Group of J.P. Morgan Securities Australia Limited and is not a product of any research department of JPMorgan Chase & Co. This material is for informational purposes only and is not intended as an offer or solicitation for the purchase, sale or tender of any financial instrument.
64 · Australian Securitisation Journal | Issue 19_2021
