The ABS market was especially quiet last week as participants waited anxiously to see if Congress would pass its second attempt at an Emergency Economic Stabilization Act. This, in addition to the Rosh Hashanah holiday, kept new issuance and secondary trading at bay.
Furthermore, with SIV downgrades and liquidation rumors spreading throughout the market (see p.14), spreads will continue to gap out.
"I would never say spreads are at their wides, we see new spread ranges every day," an ABS trader said. He noted that buying opportunities are currently very attractive in the consumer space, given pricing in the market, but economic uncertainty continues to block investor entry.
Another ABS trader said that market activity would remain at a minimum until there was further news on the economic stabilization proposal. "No one wants to launch a deal into the market, only to see it drop to half of its original value the next week," the trader said.
The same was true on the MBS side. Based on optimism over the success of the bailout, ABX prices rebounded $8 to $9 and cash 'AAA' non-agencies rose $4 to $5, according to UBS analysts, but ABX gave up a few dollars on the bill's defeat.
With the future of a government plan uncertain, option ARM trading was very limited, UBS analysts said. However, the bank noted that the mergers of Washington Mutual and Wachovia were a positive for the market. Option ARM loans are now in stronger hands and are therefore less likely to flood the market compared with the previous week. "If the bill passes, we expect further price rises in these securities," UBS said.
Because of the market anxiety, deals were scarce last week. JPMorgan Securities launched Chase Issuance Trust Class A 2008-15 Notes, a $3.6 billion, triple-A single tranched deal with a spread of 143 basis points over one-month Libor.
Across the pond, Markit held a press briefing in London last Wednesday to discuss current regulatory concerns stemming from the financial crisis. The Markit briefing also covered initiatives to increase transparency in over-the-counter (OTC) trading, something markets have been grappling with since their massive interconnected exposure became evident.
Among steps being taken by the financial information services company is a joint initiative with The Depository Trust & Clearing Corp. to launch a new company which will provide a single, integrated cross asset-class trade processing gateway for OTC derivative transactions worldwide.
Markit also said it is teaming up with Creditex. The collaboration comes with the recent launch of a credit default swap portfolio compression service for single name CDS. The service has already conducted compression cycles for European and North American credits with the participation of 15 dealers. The firms will conduct regular cycles to significantly reduce notionals outstanding in this market.
Also, scheduled to launch by early next year, Markit Valuations Manager will be a "central portal" for buy-side firms that hope to gain access to dealer marks and Markit's portfolio valuations service.
"The new platform will increase transparency and reduce operational risk significantly," Markit said.
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