Update on bank funding costs

[boz]

Interesting report on bloomberg about australian banks funding using the new government backing guarantee.
I would call that more "the Australian bank bailout" as taxpayer will pay for those bonds if banks are not going to be solvent.

Dec. 12 (Bloomberg) -- Australian state bonds slid this week as banks sold A$11 billion ($7.4 billion) of debt backed by Prime Minister Kevin Rudd’s funding guarantee, “dislocating” markets and pushing the premium investors demand to hold New South Wales securities over sovereign to the highest since the 1990s.

The spread on five-year New South Wales bonds over sovereign borrowings of similar maturity swelled to 150 basis points today, from an average of 31 points in the past 10 years, after Commonwealth Bank of Australia Ltd. auctioned A$2.2 billion of government-backed debt on Dec. 10. National Australia Bank Ltd. and Suncorp-Metway Ltd. sold similar domestic debt yesterday and three other banks carried out offerings in U.S. dollars.

“In the domestic space these bonds are seen as excellent substitutes for semi-governments which have been crowded out,” said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. “This is not about fundamental valuations,” with state spreads over federal government borrowings at the widest since the early 1990s, he said.

Rudd pledged to guarantee banks’ deposits and wholesale funding on Oct. 12 after the demise of Lehman Brothers Holdings Inc. crippled money markets, sending funding costs to all-time highs around the globe. The government’s approval rating surged after the bank guarantees and a A$10.4 billion stimulus package, a Newspoll survey this week showed.

States Struggle

State governments are struggling to pay for spending plans as economic growth slows. New South Wales, Australia’s most- populous state, is cutting expenditure and increasing charges including the toll to cross Sydney’s Harbor Bridge to plug a projected budget deficit of A$917 million in the 12 months to June 30, 2009. The state earlier forecast a budget surplus of A$268 million.

“There is going to be a level where the states say we’re not prepared to raise money at that price,” McColough said. “Do they therefore scale back their infrastructure projects?”

New South Wales Treasury Corp. last month raised its funding program forecast 8 percent to A$5.3 billion for fiscal 2009.

The yield premium on five-year bonds issued by the Treasury Corp. of Victoria over federal government debt is at 150 basis points. That spread averaged 36 basis points since 2003. Western Australia bonds maturing in 2013 are now trading at a spread of 146 points. A basis point is 0.01 percentage point.

Rudd’s guarantee has driven up state government yields without achieving its goal of bringing down banks’ funding costs, JPMorgan Chase & Co. said in a note to clients.

“The levels at which banks have been able to issue this past week suggest that both the marginal and average cost of bank term funding is rising,” Sally Auld, an interest-rate strategist at JPMorgan Securities Australia Ltd. in Sydney, wrote yesterday.

First Domestic Sale

Commonwealth Bank’s sale was the first domestic offering of debt backed by the Rudd government since the guarantee came into force Nov. 28. The fixed-rate bonds were sold at a spread of 217 basis points to the equivalent Australian sovereign bond. The spread between the bank’s A$750 million three-year bonds maturing in June 2011 and benchmark sovereigns stood at 199 basis points.

Westpac, Australia & New Zealand Banking Group Ltd. and Macquarie Group Ltd. raised more $5 billion this week selling government-covered bonds in U.S. dollars.

The flood of government-backed corporate debt offers investor the chance to earn superior returns to sovereign debt through buying bonds that have a similar level of risk, said Kumar Palghat, who manages the equivalent of A$350 million of fixed-income securities as founder of Kapstream Capital in Sydney.

Better Trade

“The better trade is to get out of Aussie government and own government-guaranteed debt,” Palghat said. “We think a portfolio of semis and government-guaranteed bonds will definitely outperform.”

State debt, often called semi debt, and guaranteed bank debt each offer yields of between 4.5 and 6 percent, he said. Rates on five-year Federal bonds fell to a record low of 3.58 percent at 9:34 a.m. in Sydney. Australian Treasury yields have tumbled as the central bank slashed benchmark rates three percentage points since September to a six-year low of 4.25 percent.

Kapstream, whose fund has gained about 7 percent this year, bought U.S.-dollar denominated sovereign-backed debt sold by Westpac and ANZ, and Commonwealth Bank’s domestic offerings. It doesn’t currently hold any Australian federal government debt.

The federal government offers insurance on bank bonds on an issue by issue basis for senior unsecured debt with a term of as long as 60 months. The guarantee covers sales in all major currencies including U.S., Australian, New Zealand and Hong Kong dollars, euros, British pounds and yen.

Standard & Poor’s on Dec. 2 agreed to give debt under the Australian program its highest AAA rating, a “substitution” for the country’s own credit rating, according to a statement. Moody’s Investors Service said Dec. 1 it would give government- backed debt its top Aaa rating.

To contact the reporter on this story: Candice Zachariahs in Sydney at [email protected]
Last Updated: December 11, 2008 18:42 EST

Interesting to see that this bailout effect state debt cost as well, I also add that would effect businesses funding cost as well (specially if not guaranteed from Government). I'll expect a lot more Australian company's going busted next year.

 

[chilliaa]

yeah yeah boz, you are also advocating people just declare themselves bankrupt now rather than save a few pennies. See your other post.

You know what gives me the confidence to invest now, the level of descension on this board.
In the good times, apart from a few perpetual D&G's, everyone is a hero in Somersoft with most people spending their time in congratulating each other, teaching newbies and generally showing how rapid their growth in assets and wealth has been.

Now that we are entering more uncertain and difficult times, its interesting to see how many people just want to talk the talk and how many are happy to walk the walk.

 

[boz]

yeah yeah boz, you are also advocating people just declare themselves bankrupt now rather than save a few pennies. See your other post.

You know what gives me the confidence to invest now, the level of descension on this board.
In the good times, apart from a few perpetual D&G's, everyone is a hero in Somersoft with most people spending their time in congratulating each other, teaching newbies and generally showing how rapid their growth in assets and wealth has been.

Now that we are entering more uncertain and difficult times, its interesting to see how many people just want to talk the talk and how many are happy to walk the walk.

???I don't understand your point. I hope that weather you are talking or walking you'll know what you are doing.
Anyway I think you should find important to see and understand what is the cost of funding for banks these days. This wouldn't effect the variable mortgage rate but for sure is v ery important to predict where the fixed mortgage rate are going to go and the potential to go lower. A lot of member of the forum are wandering when they should lock in the rates. I found this report from bloomberg definetly interesting and informing on the present situation.
Probably

 

[Token Funder]

..... everyone is a hero in Somersoft with most people spending their time in congratulating each other, teaching newbies and generally showing how rapid their growth in assets and wealth has been.

...and this doesn't strike you as a problem? Sounds more like an Amway meeting than an investment forum.

There are good and bad investments, good and bad investors and good and bad investment outcomes. A site with a Good New Only Please culture does a disservice to the newbies and is a happy hunting ground for the spivs.

 

[JIT]

Hi boz,

Thanks for the article link.

Is there some representative graph/chart/data source that one could look at to monitor banks' long-term funding costs (that would have a direct influence on their longer term, eg. 5 year fixed rates)?

People are looking at the cash rate futures chart to see what the markets expect of variable rates, but is there a similar thing one could look at for future fixed rates?

Thanks.

 

[Token Funder]

Hi boz,

Thanks for the article link.

Is there some representative graph/chart/data source that one could look at to monitor banks' long-term funding costs (that would have a direct influence on their longer term, eg. 5 year fixed rates)?

People are looking at the cash rate futures chart to see what the markets expect of variable rates, but is there a similar thing one could look at for future fixed rates?

Thanks.

Most commercial lenders etc. list the bill/swap rates which a useful trend. For example:


http://www.aaamortgages.com.au/default.aspx?pid=159

The RBA chart pack often included bond spreads etc.

 

[boz]

Hi boz,

Thanks for the article link.

Is there some representative graph/chart/data source that one could look at to monitor banks' long-term funding costs (that would have a direct influence on their longer term, eg. 5 year fixed rates)?

People are looking at the cash rate futures chart to see what the markets expect of variable rates, but is there a similar thing one could look at for future fixed rates?

Thanks.

That's a good question.
Unfortunately there is not a reliable indicator that would give you a clear indication, even in US and Europe the TED spread and libor are not a good indicator anymore. The equivalent in Australia are the banks bill that you can find on RBA website or on NAB website, those are a bit like the cash rate future and give you an idea (but I personally believe is very misleading and very much affected by RBA and politics and secrets banks agreement etc.).
We've got to say that there is a bit of competition between banks on fixed mortgage and if one major banks take risk and lower his fixed interest rate (planning to fund it with the variable borrowing that now is lower), the others major banks would have to match it and also take more risks. In any case they'll have long term funding that like bloomberg report show still need overseas investor to buy it, if they don't is like a small sheet and you'll get money from one side of the economy and the money disappear from the other, it happened with government guarantee bank account and it is happening now with higher rates on state borrowing and still high rates for bank government guarantee bond. I think 200 basis point is very high and should come down in the future and the best way to know is keep monitoring those reports from bloomberg or reuters that for sure will point out market changes. also banks get funding in other currencys and in those case they have cost associated with the hedging on the forex, it is a good diversification and interest would have to be paid in other currencys that is associated with exchange rate.
So, like the bloomberg report point out the Australia AAA sovereign rate for 5 year bond is around 3.25%, banks get 200 point above that that make 5.25%. That is what they also get in bank term deposit, so they don't really save money jet with government funding guarantee. Of course if foreign investor will trust australia more in the future (like after rise in commodity or gold) then the 200 points will go lower. Forget about 10 year fixed loans as the max government guarantee is 5 year and also the 10 year sovereign interest rate is around 4.3%. You can easly monitor these sovereign rates and very often you see them going up and down, like today the 10 year german one is 3.3% and was around 3% only few days ago.

 

[chilliaa]

...and this doesn't strike you as a problem? Sounds more like an Amway meeting than an investment forum.

There are good and bad investments, good and bad investors and good and bad investment outcomes. A site with a Good New Only Please culture does a disservice to the newbies and is a happy hunting ground for the spivs.

Yes the problem is that people should prepare themselves during the 'good times', not start to focusing on risk issues when the strom has arrived.

When developing a long term investment strategy, risk minimisation strategies should be implemented at the start. During strong economic times, the investment strategy should be stress tested to maximise its chance of surviving during down turns.

How does this relate to me in regards to residential property:
1) I only buy property in capital cities or major regional cities (dont have any here yet) because of its strong underlying economic use factor.
2) Preferably i will buy property when the purchase price is significantly less than its replacement cost value.
3) I buy the 'average' rather than the top or bottom quartile in terms of price for the area. I also look for some scarcity factor about the property.
4) The rental income must closely approximate the interest expense. The level of borrowings will be dictated by the rental income rather than how much the bank is willing to lend.
5) If purchasing properties during a period of high vacancy i will apply a discount factor to the rental depending on the vacency factor
6) I will the fix a portion of the borrowing costs for a minimum of 10 years. The larger the value of the loans, the higher the proportion will be fixed.

In regards to shares:
1) i avoid concept stocks, start ups, this is going to change the world, this is going to solve the worlds problem, this time its different type of stocks.
2) I only buy shares with proven long term track records (absolute minimum 5yrs track record, and preferably 10yrs+).
3) I focus where possible on purchasing stocks with high barriers to entry, and preferably monopolistic or at least oligopolistic tendancies.
4) I avoid cyclical companies, companies with commoditised products that can be easily replicated or that the company does not have much control over its selling price (ie where the market rather than the company controls the selling price)
5) I only invest in companies that show long term consistent increase in EPS and cashflow per share.
6) I only buy when a companies PE ratio is trading at below its 10yr average and especially start targeting the company when the PE ratio is trading near 10yr lows.
7) I invest in companies not share certificates.
8) A NEW ONE: avoid companies that need excessive debt levels to generate profit.

Prior to 2008
1) my property investment strategy didnt rely high LRV ratio's, property doubling every 10yrs, creating a retirement strategy by living off equity rather than living of rental income or any other strategy that seems to gain favour during boom time conditions.
2) The Australian stock market was too expensive for me and i only had a minimal exposure. As the market has fallen during 2008 an increasing number of shares have fallen within my valuation parameters and hence my exposure to the Australian share market has consistenly increased in dollar value.

 

[JIT]

Thanks for the reply TF and boz, interesting stuff.

 

[aussierogue]

Chillea - I see you have studied Warren Buffett too....

 

[boz]

Interesting to see westpac rising their supercheap 3 year fixed loan, I am sure they where loosing money on it, even now to me their 3 year fixed offer looks very cheap.
More update from bloomberg on bank funding:

U.S. Banks May Turn to Asia Bonds to Plug Funding Gap (Update2)
Email | Print | A A A

By Patricia Kuo

Dec. 24 (Bloomberg) -- U.S. banks including Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley may sell government- guaranteed bonds in Asia next year, tapping growing demand for the region's local-currency debt to bolster their balance sheets.

U.S. financial institutions sold more than $100 billion of government-backed notes in dollars, euros and British pounds since Oct. 14, when the Federal Deposit Insurance Corp. agreed to guarantee their bonds to help them cope with $678 billion of losses and writedowns amid the global credit crunch.

``Banks like Morgan Stanley and Goldman will have to tap Asian currencies because the potential supply is too big for dollars, euros and pounds to take on,'' said Arthur Lau, a fund manager at JF Asset Management Ltd. in Hong Kong, which oversees $128 billion. ``It's a perfect product for insurance companies in Asia. The bonds offer good yield pick-up, high credit ratings, good liquidity and no currency mismatch.''

U.S. banks may be forced to follow European and Australian banks, which lured fund managers to $6.6 billion of government- backed securities in Asia-Pacific since September with yields of as much as double those on sovereign debt, data compiled by Bloomberg show. Sales of FDIC-backed notes maturing in more than a year may reach $450 billion by the end of June, Barclays Capital analysts said on Dec. 9.

Government Guarantees

Citigroup spokesman James Griffiths and Morgan Stanley spokesman Nick Footitt weren't immediately available to comment. Goldman Sachs' Hong Kong-based spokesman Edward Naylor declined to comment.

Royal Bank of Scotland Group Plc, the U.K.'s second-largest bank, on Dec. 19 borrowed A$525 million ($356 million) in the first Australian government-backed bond sale by a foreign lender. Australia & New Zealand Banking Group Ltd. this month sold 35 billion yen ($386 million) of five-year securities priced to pay 1.85 percent, compared with 0.9 percent Japan pays for sovereign notes of similar maturity.

New York-based Goldman Sachs last sold Hong Kong dollar bonds in January with HK$90 million ($12 million) of 10-year notes paying 4.16 percent, Bloomberg data show. Citigroup raised HK$474 million selling 10-year notes in November last year, priced to yield 5.41 percent.

Citigroup's $3.75 billion of 2.875 percent FDIC-guaranteed bonds maturing in 2011 traded at 168 basis points above U.S. Treasuries today, Bank of America Corp. prices show. The notes were priced to yield 188.4 basis points more than government debt when sold on Dec. 2, according to Bloomberg data.

Lehman Bankruptcy

European and Australian financial institutions led by Bank of Ireland Plc and Danske Bank A/S have tapped the yen and Hong Kong dollar bond markets to sell $1.3 billion of government- backed debt since September, Bloomberg data show.

Ireland in September became the first European country to guarantee the deposits and debt of its six largest lenders after Lehman Brothers Holdings Inc.'s bankruptcy decimated bank share prices and drove default risk to a record high.

Asia's local-currency bond sales rose 7.5 percent this year while issuance in the G3 currencies of dollars, euros and yen dropped to the lowest since 2000, falling 13 percent in the U.S. and 5.8 percent in Europe as slowing economic growth crimped demand for credit, Bloomberg data show. Annual trading volumes in Asia's local-currency government and corporate bonds almost tripled from 2002 to $6 trillion last year, according to the Asian Development Bank.

Perfect Conditions

``The traditional G3 market is stretched and would likely remain difficult for some time, while funds in the Asian domestic markets still have a lot of money that needs to be put to work,'' said Clifford Lee, head of fixed income at DBS Group Holdings Ltd. in Singapore. ``The setting is perfect for the Asian local- currency market to grow.''

Overseas fund managers almost doubled holdings of Asian bonds between 2003 and 2006 to $197.47 billion, Asian Development Bank data show.

DBS Group's S$1.5 billion ($1 billion) perpetual bond sale in May attracted more than 70 investors, compared with an average of about 20 investors for pre-2007 sales, Lee said.

Investments in Asian currency bonds returned as much as 21 percent this year, according to an HSBC Local Bond Index. Asian banks' dollar notes lost investors 16 percent after earning 3.2 percent in 2007, according to JPMorgan Chase & Co.'s Asia Credit Index. U.S. financial institutions' dollar bonds lost 14 percent, while those of their European peers fell 6 percent, Merrill Lynch & Co. indexes show.

Australian Bonds

The extra yield investors demand above government debt to buy quasi-sovereign and foreign government notes denominated in Australian dollars almost doubled from July to a record 132 basis points on Dec. 12, when Australian government-guaranteed bond sales started in earnest, Merrill data show. A basis point is 0.01 percentage point.

Asian banks, which held fewer investments tied to subprime mortgages and collateralized debt obligations than lenders in Europe and the U.S., had $31 billion of writedowns and losses since the start of 2007. That compares with $678 billion for banks in the Americas and $295 billion for European financial institutions in the same period.

Asian nations have been trying to reduce their reliance on overseas debt by developing local-currency bond markets since companies buckled under billions of dollars of debt in the region's financial crisis a decade ago.

Outstanding overseas debt was equal to 2.4 percent of Indonesia's economy at the end of 2007, down from 5.3 percent in 1997, and in Thailand plunged to 2.7 percent from 11.7 percent, according to Asian Development Bank data. South Korea's overseas debt fell to 11 percent from 16.1 percent.

To contact the reporter for this story: Patricia Kuo in Hong Kong at [email protected].
Last Updated: December 24, 2008 01:57 EST

 

[boz]

from the australian

NAB prices $US2.5bn bond at tight end of range

* Font Size: Decrease Increase
* Print Page: Print

Ditas Lopez | January 07, 2009
Article from: Dow Jones Newswires

NATIONAL Australia Bank has priced a $US2.5-billion ($3.5 billion) three-year government-guaranteed bond.

NAB is the first international bond issuer from the Asia-Pacific this year.

The bond priced at the tight end of the range indicated to investors earlier this week, a person familiar with the deal said.

The deal follows a string of successful offerings last month by Australian banks using the government’s term-funding guarantee to borrow in the liquid US private-placement market.

The bond, maturing on January 13, 2012, was priced at 99.862 to pay a spread of 85 basis points over the mid-swaps rate, or 156.5 basis points over US Treasurys.

Lead managers Barclays Capital, HSBC Securities, Merrill Lynch and RBC Capital Markets had initially indicated that the pricing would be 85-90 basis points over swaps.

“In terms of size, it was significant,” the person familiar with the deal said, adding that “the price was pleasing to see”.

The order book totaled over $US3.5 billion, he said.

Agents took a commission of 20 basis points, resulting in an all-in price of 99.662, with net proceeds to issuer at $US2.49 billion.

Australian banks typically move to lock in their funding requirements ahead of schedule, and have in the past aggressively targeted the US market in early January.

Investors across the world have jumped at the new asset class of government-guaranteed bank debt, which effectively offer fund managers risk-free debt priced more cheaply than government bonds.

Thaw was funding in US$ there would be some extra cost on forex hedging for NAB, I think the 3 year bond would have been around 2.6% yield

 

[boz]

An interesting update on mortgages in US from bloomberg, I know that a lot of member on this forum think that over here is different and don't care on what happen in US, but who (like me) think more global there are sign the credit crunch is easing and the FED is succeding in getting banks in US to lend more money at a lower rate. Also we have to remember australian banks gets a lot of their funding in US$.

U.S. Banks Offer Mortgages Below 5% After Fed Action (Update1)

Jan. 8 (Bloomberg) -- The largest U.S. banks are starting to offer fixed home loans below 5 percent after the government began buying mortgage securities to bolster the housing market.

JPMorgan Chase & Co. is advertising 30-year mortgages as low as 4.75 percent on its Web site, Wells Fargo & Co. has an offer for 4.875 percent and Bank of America Corp. has rates at 5 percent. The offers are for borrowers with excellent credit who put 20 percent down.

The Federal Reserve earlier this week began purchasing $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae to help lower mortgage costs. While the lower rates may lead more borrowers to refinance, it may not spur home buying in the second year of the recession after more than 2 million jobs were lost in 2008.

“I don’t know if there is a magic number now that everyone is freaking out about the economy,” said Paul Miller, a mortgage industry analyst with Friedman Billings Ramsey & Co. in Arlington, Virginia. “The home buyer is scared out of the market.”

Freddie Mac today reported that the U.S. average rate on a 30-year mortgage dropped for the 10th straight week to the lowest on record. The fixed rate dropped to 5.01 percent from 5.10 percent a week earlier, Freddie Mac said. That’s the lowest in data that goes back to 1971, according to the McLean, Virginia-based mortgage buyer.

Lower Yields

The Fed’s purchase program, which also includes buying $100 billion in direct debt, is intended to lower consumer rates by reducing the supply of agency mortgage bonds issued by Fannie, Freddie and Ginnie. That would boost their prices and lower yields, in turn reducing the interest rates banks charge on new mortgages to ensure sales of the securities are profitable. Agency bonds now facilitate almost all new home lending.

Jill Pfeiffer, a mortgage broker in San Diego, this week obtained a 4.875 percent rate on a 30-year fixed loan for a homebuyer with a credit score above 750, she said in an interview.

“It’s the lowest I’ve ever locked in on a 30-year fixed” since she began her business in 1996, she said.

The loan, with Sun Trust Mortgage Inc., had no origination fee or points, a percentage of the loan amount that lenders charge, Pfeiffer said. At least two other lenders could have matched the rate, she said. She also had four inquiries from homeowners looking to refinance mortgages.

Prices Declining

Rates are dropping as home prices in 20 major U.S. cities declined 18 percent in the year through October, the fastest rate on record, as tighter lending standards curbed sales and foreclosure sales pushed down values.

Sales of single-family homes declined 7.6 percent in November from the prior month, the most in two decades, according to the Chicago-based National Association of Realtors. Resale prices fell 13 percent, the most since the Great Depression in the 1930s.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan dropped to 1,143.8 for the week ending Jan. 2, from a five-year high of 1,245.7 the prior week, as consumers held out for lower rates. The group’s purchase gauge rose 7.3 percent and the refinancing measure decreased 12 percent.

Applications for home-loan refinancing and new purchases may increase as rates drop below 5 percent and exceed the five- year high of two weeks ago, Jay Brinkmann, chief economist for the Washington-based Mortgage Bankers group, said in an interview.

Lower Rents

“We would expect that activity to continue,” Brinkmann said of increased mortgage applications.

Lower rates may not encourage some buyers because U.S. apartment rents are falling and landlords are offering concessions such as free rent to avoid higher vacancies.

Apartment rents fell in the fourth quarter from the third as the national vacancy rate climbed to a four-year high of 6.6 percent, Reis Inc. said yesterday in a report.

Asking rents fell 0.1 percent from the previous quarter, to $1,052 on average, their first quarter-to-quarter decline in almost six years. Effective rents, what tenants actually paid, fell to an average $996 last quarter, down 0.4 percent from the prior quarter.

“Even if rates go low enough, if you got married, you’re 28 years old with no kids -- the typical first time buyer -- you’ll wait a year and continue to rent because there are good deals out there,” said Miller, the mortgage analyst.

At HomeStreet Bank in Seattle, consumers were being offered a 30-year fixed mortgage rate of 4.75 percent this week, according to Rich Bennion, vice president of residential lending. Flagstar Bank in Troy, Michigan, had rates below 5 percent that may include some costs to customers, spokeswoman Susan Cherry said.

“This is the lowest that I’ve seen,” Bennion said.

To contact the reporter on this story: Dan Levy in San Francisco at [email protected].
Last Updated: January 8, 2009 10:37 EST

 

[buzzlightyear]

FICO Score of 720

Boz thanks for the update.

In the lead-up to the new year, rates (in the US) were being advertised at 5.13% for 30 mortgages, they were mentioning for people with 20% deposit and a FICO score of 720+

Does anyone know what a FICO score of 720 means or would equate to a borrower here?

 

[Token Funder]

Boz thanks for the update.

In the lead-up to the new year, rates (in the US) were being advertised at 5.13% for 30 mortgages, they were mentioning for people with 20% deposit and a FICO score of 720+

Does anyone know what a FICO score of 720 means or would equate to a borrower here?

No equivalent of FICO in Australia (yet). However, anything over 700 reflects a good borrower and the better the score, the cheaper the rate.

US has a positive credit scoring system (banks have access to more data) whilst in Oz we only see how many applications for credit you have made and where you have defaulted. Basically, your credit report is either ignored or works against you in Oz

 

[boz]

In the last week I have noticed the yeald of the 10 year government bond rising (price falling), this was after 1 month of stable yeald and 6 months of yeald falling.
This is important as banks funding spread is somewhat link to the gov bond yeald.
here is the chart for the 10 year gov bond and the 3 year gov bond




definetly seems yeald for the medium-long term are decoupling from the RBA rate, same thing is happening in UK and US.
I think it is too early to call the peak of the long term bond market as lots of factor can push yeald back down.
In any case I am sure smart investor like Shadow are ready to lock in with their view ahead of the banks....

 

[boz]

today also NAB sold more government backed bond, this time the yield is 75 point over the 5 year swap, back in december when government start backing banks bonds it was over 100 points over swap. On the other hand the swap rate is higher and the 5 year government bond is at 3.85% yield.
link

NAB prices A$500 mln 2014 govt-backed bonds-source
Thu Feb 5, 2009 11:43pm EST

Market News


SYDNEY, Feb 6 (Reuters) - National Australia Bank (NAB.AX),
the nation's largest lender, has raised A$500 million ($327.7
million) in a new issue of five-year bonds backed by the
Australian government, a market source said on Friday.

The bonds paid 75 basis points over swap and will mature on
Feb. 12, 2014, the source said.

JPMorgan was sole lead.
($1=1.526 Australian Dollar)
(Reporting by Cecile Lefort

 

[Token Funder]

today also NAB sold more government backed bond, this time the yield is 75 point over the 5 year swap, back in december when government start backing banks bonds it was over 100 points over swap. On the other hand the swap rate is higher and the 5 year government bond is at 3.85% yield.
link

..plus they have to pay the government guarantee of .70% so total cost 145bp over swaps.

 

[boz]

..plus they have to pay the government guarantee of .70% so total cost 145bp over swaps.

have you got the detail about that? I haven't read about it (or don't remember). If you are right how about the 0.7%, then, when banks borrow in other currencys (like westpac this week borrowed in japanese jen), 0.7% on the japanese jen is very different then 0.7% on the AU$. do you know how this fee works?

 

[Token Funder]

have you got the detail about that? I haven't read about it (or don't remember). If you are right how about the 0.7%, then, when banks borrow in other currencys (like westpac this week borrowed in japanese jen), 0.7% on the japanese jen is very different then 0.7% on the AU$. do you know how this fee works?

http://www.anz.com/Business/specialised_services/Debt_Investors/Australian-Government-Guarantee.asp