Lower-than-expected volume of covered bond issuance by the major Australian banks last week has caused the AUD/USD basis swap to narrow by at least 14 basis points in the past few days and consequently worsened Kangaroo issuance economics. However, intermediaries say the larger problem is seemingly relentless extreme spread widening – which has taken issuance off the table for Kangaroo borrowers for the foreseeable future and may change the characteristics of the market entirely going forward.