Bank funding costs warm up again

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:


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:

ScreenHunter_10741 Dec. 03 15.46
ScreenHunter_10740 Dec. 03 15.45

Hope you’re enjoying your lap of honour, Glenn.

David Llewellyn-Smith
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