Bank funding costs warm up again

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As expected, as the Mining GFC has intensified in this past week we have again seen Australian bank funding costs begin to rise. After yesterday’s US and emerging market high yield bond sell off the CBA CDS price (which is a good proxy for underlying five year bank bond rates) jumped 3.9% to 87.6bps and is in a very nice up trend:

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It’s not a problem just yet. Funding costs do not become prohibitive for securitisers until about 120bps and for major banks at more like 150bps but it again confirms that Australian bank funding costs are sensitive to the debt contagion of the underlying Mining GFC and if we do see an increasing freeze in mining and emerging market debt then it is also coming to our banking system.

That matters thanks to Glenn Stevens’ renewed offshore debt bubble:

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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.