The active Australian mortgage-backed securities market is heading for a strong year, but the medium-term outlook is becoming clouded by developments that appear to have negative implications.

Foremost among these is the Australian Prudential Regulation Authority's take on proposed changes to the capital adequacy framework for banks: local market participants fear that APRA could implement the changes in such a way as to slow the MBS market's development. At the same time, concern for the credit quality of mortgage insurers is growing, sowing a doubt about the integrity of what many offshore investors (particularly in the U.S.) regard as a key structural component of the Australian market.

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