European ABS looks set to enter August on a quiet note. On the primary side, there are no new public offerings in the pipeline after last week's launch and pricing of Santander's auto loan ABS deal.
Societe Generale analysts said that the lack of primary issuance is likely to last until September. August has historically averaged issuance volumes of €2.6 billion ($3.39 billion) of non-financial investment grade issuance since 2001 — excluding last year’s exceptional €12.1 billion.
"Low volumes are likely to be repeated this year," said SocGen analysts. "We may have some scattered deals but they will not be enough to satiate the appetite for credit prevailing in the market."
It is likely that this supply and demand imbalance will lead to tighter pricing in the secondary market and push credit's total return year-to-date above the current 4.34% for non-financial corporates, according to SocGen analysts.
"We may still see more bank issuance as banks take advantage of the positive sentiment generated by the stress tests and the overall upbeat earnings results," SocGen analysts said. "But we expect only some scattered IG deals which will be hardly enough to keep up with the market's demand for credit. Activity will remain slow until September."