Australia's growth will continue to be dominated by residential mortgage-backed deals in 2007, with originators benefiting from significant demand from local and international investors. However, observers will keep an eye on the level of delinquencies, which are creeping upwards as interest rates rise.

Currently, delinquencies are nowhere near a level that might affect transaction performance. Nevertheless, going forward, originators wanting tightest spreads will not be able to mix low-documentation mortgages - the sector with the highest delinquency rates - into otherwise prime deals.

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