Investors continue to shrug off rising home loan arrears, subscribing for mortgage securities at narrower margins since the start of the year. Pepper Money is the latest issuer, pricing a A$750 million issue of residential mortgage-backed securities, PRS39, which is supported by a mix of prime and non-conforming mortgages. Pepper is paying a margin of 90 basis points over the one-month bank bill swap rate on the short-dated A1-s notes. It is paying a margin of 135 bps on the A1-a notes and 160 bps on the A2 notes. When Pepper issued PRS38 last August, it priced the A1 notes at 150 bps and the A2 notes at 182 bps. Pricing has come in 15 to 20 bps. Pepper said the funds raised will support its growth in its non-conforming mortgage business. Margins have also tightened in the prime market. Pricing of recent transactions by ColCap and Westpac indicate that margins on senior notes have come in by around 10 bps since last year for bank and non-bank issuers.