Betting the house: investors demand higher premiums for risky Australian mortgage bonds

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Betting the house: investors demand higher premiums for risky Australian mortgage bonds
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Investors in Australian mortgage bonds are demanding higher premiums to buy the ...

SYDNEY - Investors in Australian mortgage bonds are demanding higher premiums to buy the riskiest tranches of new debt, as a slowing economy stokes concerns a property downturn could get worse and increase home loan defaults.

That marks an important shift from a near decade-long run of relatively stable spreads for the lower-rated residential mortgage backed securities , as the previously red-hot property prices have turned sharply lower, particularly in the major Sydney and Melbourne markets. Indeed, the still-strong appetite for the safer - and much bigger - portions of mortgage debt suggests a major economic shock is unlikely.

An ME Bank deal this month included A$5.25 million of unrated securities paying a 6% margin over benchmark rates which is 25 basis points more than what ME Bank paid buyers of similar non-rated bonds in October, the bank said.

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