Sub-prime risks subsiding: RBA

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Things are looking up in Australia's mortgage market amid signs that the sector has survived the worst effects of the sub-prime crisis, according to a Reserve Bank of Australia official.

Guy Debelle, assistant governor (Financial Markets), RBA, said that the local securitisation market which was temporarily disrupted at the height of the sub-prime crisis is slowly coming back to life as evidenced by the increasing market activity recently.

"In recent weeks, there have been signs that this process might be drawing to a close with secondary market activity improving and indications that a number of primary issues will be coming to the market shortly," Debelle said.

The first of these issues is Citigroup's $500m RMBS (residential mortgage-back securities) launched on Friday.

Roy Gori, CEO of Citibank, said there has been strong interest for this securitisation program from a broad range of investors. "We had a positive response to our soft sounding and tried to turn around a transaction as quickly as possible. What originally would take six weeks has taken three to deliver. The actions taken by the RBA to improve liquidity helped this trade but it was good to see the usual investors keen to buy.

"We believe this interest is a sign that the credit markets are beginning to clear," Gori continued. "Much progress will still need to be made before any reversion to normality, but this is a clear vote of confidence in the longer term."

The local securitisation market, where lenders used to raise cheap funds, virtually dried up at the peak of the crisis, resulting in the excess of supply of RMBS locally. At the same time, demand shrunk due to the absence of structured investment vehicles who had invested in RMBS. The RBA said the resultant decline in the price has discouraged local buyers despite recognition that the price was very attractive and the product was very sound because of concern that prices could fall further.

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