The securitization market completed about $9.8 billion in transactions during the last two weeks, according to data from UBS. Although that amount is a fraction of what is normally issued in any given two-week period, traders and issuers appear to be getting used to it.
"From what I've heard, this week we're not going to have anything," said one trader, of his bank's plans. "We're working off of some stuff [that we have] in inventory and secondaries."
A fresh round of drastic downgrades from Moody's Investors Service and Standard & Poor's put a further damper on the subprime MBS market.
After Moody's took its rating action, investors began a selloff that destabilized the ABX single-A indices more than they had been before. The ABX 07-1 A index sold off 14.3 points from early October, while the ABX 06-2 A index is down 15.4 points over the same time period, according to UBS.
In normal functioning markets, those actions might prompt investors to snatch up consumer ABS paper. For the most part, investors behaved consistently. Not even flight-to-quality practices, however, could coax a hearty stream of deals out of issuers in those asset classes.
Since Oct. 12, just two deals came to market. The $1.5 billion SLM Student Loan Trust, 2007-6, which was issued by Sallie Mae and came to market via Citigroup Global Markets, Deutsche Bank Securities, Morgan Stanley and UBS, underscored the strong demand for consumer ABS product among investors. As the transaction was in its final stages of marketing, says UBS, it had already been oversubscribed.
As a matter of fact, the two-year, triple-A tranche priced at three-month Libor plus 17 basis points, when guidance was actually set at around 20 basis points.
Another triple-A-rated class, with duration of slightly less than 10 years, also managed to come in tighter than market expectations. Guidance put those securities at 40 basis points over three-month Libor, and it priced at 38 over.
"Credit cards and student loans definitely seem to be going tighter," said the bank trader. He added, however, that spreads on auto ABS were not coming in nearly as tightly as they were on cards and student loans. That, he said, remained a little bit of a mystery given that there was palpable investor demand for the paper.
That movement follows the recent widening and narrowing trends, which Morgan Stanley highlighted in its ABS Data Package report. "Non-mortgage spreads have tightened in from their sudden and dramatically wide levels we saw last month," wrote Morgan Stanley analysts.
Bear Stearns and Morgan Stanley brought the $1.7 billion Bear Stearns Commercial Mortgage Securities Trust to market recently.
Priced against swaps, most of the securities in that deal priced at guidance levels, or within three basis points of where they were set initially. The triple-A-rated 4.84-year class, for instance, came in at 47 basis points over swaps, when talk set prices about three basis points wider.
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