With $6.2 billion already spent of the government’s planned $8 billion injection into RMBS, there has been no firm indicator whether the government will renew its funding of the non-bank sector.
Launched late last year, the government hoped to increase market competition through purchasing new RMBS issues originated by non-bank lenders struggling to raise funding as a result of the US subprime crisis.
With funds now set to run out, there has been no indicator yet that the government will continue the programme.
Reuters yesterday reported that the CEO of the Australian Office of Financial Management could not confirm continued government participation, saying “It is a matter for the government and I don’t know what their decision will be.”
However a large number of market participants expect the government to renew, in some form or another, an RMBS support plan because competition among non-bank lenders was deemed essential to maintain market competitive, Reuters said.
Nevertheless, according to the newswire many experts have labelled the RMBS purchase plan as ineffective in providing much-needed liquidity since the spreads of new RMBS issues purchased by the government were artificial and far below those seen in secondary markets.
For example it pointed to FirstMac and Resimac offering margins around 140bps above BBSW compared to the 400-500 bps in secondary markets.
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