Pimco is buying the Australian airline backed by mortgage loans on the secondary market

Pacific Investment Management Co., which manages the largest bond fund, is buying the Australian airline backed by mortgage loans on the secondary market to benefit from higher yields than European investors dump bonds.

Australian unit of Pimco, which manages about 32 billion U.S. dollars (31.9 billion U.S. dollars) bought AAA-rated residential mortgage-backed securities this month up as much as 165 basis points more than the bank exchange rate bill Robert Mead, head of Sydney-based portfolio management, said in an interview. The new bond sales pay about 110 basis points, or 1.1 percentage points, said.

"We believe the more active through debt Australia is RMBS in the secondary market," said Mead. "Distressed areas of Europe are net sellers of RMBS in Australia, benefiting from."

As many as a quarter of the RMBS sold annually by lenders in Australia between 2002 and 2007 was denominated in euros to attract European investors, according to Standard & Poor's. The region is now struggling against a sovereign debt crisis which has seen Greece and Ireland will accept the bailout and forced the European Union to create a line of 750 million euros ($ 988,000,000,000) emergency fund.

Moody's Investors Service has downgraded the credit rating five levels to Ireland Baa1 from Aa2 on 17 December with further reductions possible as the government struggles to stem losses in the banking system in the country. Moody's said last week that may decrease and Spain from Aa1 Ba1 rating also put Greece on review for possible downgrade.

Priorities in sales'

When institutions are undercapitalized and do not have access to new sources of funding, "the need to sell assets to reduce the size of balance," said Mead. "We often focus on high dollar price, liquid assets and the sale of priorities."

Many structured investment vehicles at sea, forming a "significant part of the international investor base" for RMBS Australia before the credit crunch of 2007, were forced to liquidate their portfolios during the crisis and sell the notes in the secondary market, Reserve Bank of Australia Assistant Governor Guy Debelle, said in a speech Nov. 30.

Secondary market RMBS widened to as much as 450 basis points amid the financial crisis, from 20 basis points before the U.S. subprime collapse affected markets, according to the speech.

Wide Bay Australia Ltd., a nonbank lender, paid 105 basis points more than the bank rate of exchange bill of $ 138 million of RMBS rated AAA, with an average life of 1.5 years, according to a e-mailed statement last week from Australia and New Zealand Banking Group Ltd., which helped manage the sale.

House Prices

ANZ Bank, the third largest bank in Australia by market value, pay a spread 70 basis points to sell $ 100 million three-year bonds last month.

Pimco bought mortgage bonds denominated in Australia and the U.S. local dollars and the euro, "said Mead. The investor prefers to buy RMBS bonds in the secondary market for homeowners who borrowed the underlying mortgages backing the notes have proven they can meet payments, he said.

"The beauty of these values is that house prices have risen and, as a conservative and loan structure assessment rates have become more conservative," he said. "Our preference is the opportunity experienced in the secondary market."

House prices in Australia have risen 20 percent since early 2009, according to the statistics bureau.

Bubble Concerns

Although Gerard Minack, a strategist at Sydney-based development markets Morgan Stanley warned in August that the houses are about 40 percent overvalued, the Reserve Bank of Australia said in a June report there are lots nominal mortgage bonds of the nation have suffered a fault.

Prices in the established housing market have "cool" and often "in general sideways" since June, the RBA said in the minutes of its December 7 meeting, released today.

Pimco is also Australian bonds so attractive and maintains an overweight position to the dollar in the nation, "said Mead.

The currency has gained 11 percent against the dollar this year. The debt has returned 7.2 percent this year, according to the rate of Bank of America Merrill Lynch. The S & P / ASX 200 stocks has returned 2 percent, including reinvested dividends.