Prop­erty bub­ble bets help spur surge in Aussie bank bond risk

The Pak Banker - - BUSINESS -

SYN­DEY: The cost of in­sur­ing the debt of Aus­tralia's largest banks surged by the most in four years af­ter a re­port by re­search firm Variant Per­cep­tion fu­eled spec­u­la­tion about risks in the na­tion's hous­ing mar­ket. The av­er­age cost of credit de­fault swaps for the four big­gest Aus­tralian lenders surged by 18.6 ba­sis points on Thurs­day, the largest one-day in­crease since Nov. 1, 2011, based on CMA prices. The con­tracts reached 142 ba­sis points, the high­est level since Oc­to­ber 2012, when the Euro­pean debt cri­sis was at the fore­front of in­vestors' con­cerns. Aus­tralia's banks are ex­posed to an econ­omy that's be­ing buf­feted by the slow­down in China, the col­lapse in global com­mod­ity prices and a de­cline in cap­i­tal spend­ing. The Re­serve Bank of Aus­tralia's bid to sup­port the econ­omy with record low in­ter­est rates has helped fuel a boom in hous­ing that's now show­ing signs of stut­ter­ing. The past week has seen sev­eral re­ports in lo­cal me­dia dis­cussing the re­port from Variant Per­cep­tion. "Neg­a­tive press cov­er­age on the sec­tor ear­lier in the week may have con­trib­uted to some buy­ing of pro­tec­tion over the past few days, in par­tic­u­lar yes­ter­day," said Gus Medeiros, a Syd­ney-based an­a­lyst at Deutsche Bank AG. "There's prob­a­bly greater in­ter­est from off­shore in­vestors." Hous­ing prices in Syd­ney, Aus­tralia's largest city, recorded their big­gest quar­terly drop in four years in the fi­nal three months of 2015 as a reg­u­la­tory crack­down pushed up mort­gage rates and dented af­ford­abil­ity. In the past week, the Aus­tralian Fi­nan­cial Re­view was among me­dia that cited a re­port from Variant Per­cep­tion warn­ing of a hous­ing bub­ble in the na­tion. While CDS have blown out, there has been less move­ment in the price of ac­tual bonds is­sued by Aus­tralian banks.

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