No fire sale for AOFM RMBS

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From Banking Day:

The Australian Office of Financial Management will not conduct a fire sale to meet the Government’s deadline for divestment of its holdings of residential mortgage-backed securities.

In the May Budget the Government announced that the AOFM would divest its RMBS holdings, valued at A$4.6 billion at the time. The AOFM’s plan is to auction between $300 million and $500 million of RMBS a month.

The initial sale on June 24 yielded $160 million of the $500 million of securities on offer and the second, on July 14, yielded $96 million of $500 million of securities offered.

Speaking at a meeting of the Australian Securitisation Forum last week, AOFM chief executive Rob Nicholl said his organisation did not feel pressured to respond in future auctions by selling large volumes at low prices to catch up with its divestment schedule.

Nicholl said: “Given the lack of trading data for the secondary RMBS market we fully expected that it would take some time for expectations to adjust, although we had probably underestimated the extent of the gap in expectations revealed so far.

“It may take some time to reach a better alignment. We are not going to run some sort of fire sale.”

I’d be prepared to bet that this little portfolio resumes growth long before its disappears.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.