Commodity producing countries under pressure (political/economic - Australia) - Australian taxpayer libilties increase (update 14)

As the Australian Treasury backs a further residential mortgage backed security (RMBS) 'securitization market' that is already at $16billion AUD (which is close to the Australian military budget), it also now wants expand into 'covered bonds' released onto the market via smaller lenders. The catch? The goverment (taxpayer) will underwrite the deposits connected to the covered bonds, in which the taxpayer funded monster Australian Office of Financial Management (AOFM) has been hemorrhaging since 2008.

The problem? The market will eat this (insanity from the Australian goverment) alive, as the whole thing will be interpreted as a goverment fear of a housing bubble/crash. Watch Australian bond yields go into hyper space as Australian borrowing costs blowout.

If China pops the commodity bubble in 2011, Australia's income dependency will dissipate and you might as well connect Australia to the EU debt problem, say similarity being Spain (housing bubble/bust, banks, trillion dollar economy etc)

"SINGAPORE, Dec 13 (IFR) - Australia’s Treasurer Wayne Swan yesterday (December 12) announced a series of bank reforms including introduction of covered bonds and setting aside another AUD4bn (USD3.9bn) to support the RMBS market.
The measures were issued under the the government’s Competitive and Sustainable Banking System reforms. Draft amendments in the Banking Act to allow issuance of covered bonds in Australia will be released when the Parliament first reconvenes next year.

As a three-pronged strategy, the government has allowed all banks, credit unions and building societies to issue covered bonds, a move that will help these borrowers access cheaper and long term stable funding. Covered bonds are backed by assets which can be enforced upon at the occurrence of a default. They therefore are priced at lower interest rates compared to plain vanilla bonds.

Under the proposal, each covered bond issuer may have a limit or cap assigned. For instance, an issuer may be allowed to issue covered bonds up to 5% of its total Australian assets.

The government also plans to deepen the corporate bond market by launching the trading of government bonds on exchanges.

Meanwhile, the government extended by a further AUD4bn the support programme to the RMBS market. The government has already provided AUD16bn to the Australian Office of Financial Management to invest in the Triple A rated RMBS tranches. The fund was created in early 2008 at an initial size of AUD8bn, and a year later, doubled to help the securitization industry, which has suffered a hit by the global financial crisis. So far, about AUD15bn is believed to be fully invested in the market, while the remaining will be invested by early 2011.

Significantly, the government has also emphasised on the development of special “bullet” bonds for smaller lenders to help diversify their funding. Last week, regional lender Bendigo and Adelaide Bank issued an AUD1bn RMBS, which had little over 50% of the deal in bullet notes. This was the second deal in the year which had fixed rate notes."