Even if new loan volume under FFELP will be revmoved, Bank of America Merrill Lynch analysts still expect new-issue SLABS volume for 2011 to be comparable to 2010.
Analysts said that the potential sources of new issues are restructured auction-rate and reset-rate notes as well as the FFELP loan refinancing that are now funded through conduit programs.
According to BofA Merrill, new student loan ABS from the restructuring of auction-rate notes trade at a concession (30 to 35 basis points) to the ABS sponsored by the larger, benchmark issuers.
"We believe the sector can offer value, especially as the available supply of FFELP student loans continue to dwindle and the underlying loans tend to be more seasoned," analysts wrote. They added that investors will likely still look for opportunities in failed student loan auction-rate notes.
The trading levels for these securities are different in terms of the type of financing vehicle, sponsor, and maturity, analysts said.
In broader terms, analysts said that the relatively low yields has led them to a market weight recommendation to the overall ABS market.
For the remainder of 2010 and into next year, analysts said that the the benchmark "vanilla" ABS sectors — triple-A rated cards, autos, and FFELP should still provide stable but narrow spreads with modest tightening potential. This is inspite of the expectation for low supply and improving credit.
Analysts are still modestly overweighted to these sectors. The volatility in the broader markets, they said, might result in the move to tighter spreads in the non-benchmark sectors to stop.
However, analysts are still suggesting an overweight position to the higher yielding non-benchmark sectors, such as subordinated classes, private student loans and esoteric ABS.