AOFM’s third RMBS tender

In the AOFM’s third RMBS auction, $122.85m of securities held by the AOFM were sold representing just over 17% of the amortised face value of bonds on offer. The amount sold was higher than the $96m disposed in the second auction held in July but still seen as being somewhat on the light side. Westpac commented, “Either the reserve levels of the AOFM are set too high, investor bids are too low or opportunistic, or a combination of these [factors].” The chief of the AOFM, Rob Nicholls gave a speech last month in which he discussed the aims of the sales process and he sought to dismiss theories the AOFM was under pressure. However, perhaps as a result of the three auctions, the AOFM announced it would decrease the amount of RMBS on offer “until further notice”. The AOFM bought large swathes of RMBSs from investment banks in the aftermath of the GFC in order to provide immediate liquidity. The sales process has been orderly but slow with the AOFM being categorised by some as a ‘fussy seller’. There is conjecture as to whether markets are trying to game the AOFM in order to buy the bonds cheaper, whether the market genuinely believe the value of the RMBSs is lower than being offered or whether the AOFM is playing a long game and trying to maximise the value for Treasury.