With some industry participants getting ready for the holiday vacation, and others packing up their desks, the ABS market remained quiet last week. New issuance trickled in and trading was relatively limited in the secondary market, all symptoms of a typical yearend slowdown, but also signs of further weakening to come.
Bad news on recent unemployment numbers only puts further pressure on depressed consumer ABS conditions, a market source said. The U.S. Labor Department reported last Thursday that initial applications for jobless benefits in the week ending Dec. 6 rose to a seasonally adjusted 573,00, a twenty-six year high. The number of people collecting unemployment benefits is currently at 4.43 million, the Labor Dept. said.
A JPMorgan Securities report last week noted that distressed bids pushed out spreads in the secondary market for another week, which traders confirmed. Triple-A spreads on benchmark sectors/names increased by 25 basis points to new record wides, JPMorgan analysts said. Subordinate bonds also dramatically gapped out - bid to 20% yields, even for short bonds from top-tier names, according to the analysts.
Nonetheless, the market did see a few signs of investor demand. American Honda Finance Corp. came to market with Honda Auto Receivables Owner Trust 2008-2, a $306 million auto securitization arranged by JPMorgan Securities. Pricing on the short term paper was 75 basis points over interpolated Libor. Triple-A paper was priced at 350 basis points over Libor with an approximately one-and-a-half year average life.
After several weeks of quiet from the student loan sector, the North Carolina State Education Assistance Authority issued student loan revenue bonds under Series 2008-5. The deal totaled $159 million and was collateralized by FFELP loans. BB&T Capital Markets served as manager on the transaction.
On the MBS side, trading has seen a boost over the past two weeks as a result of some good news items: the Federal Reserve announced a program to purchase $500 billion in mortgages; a Wall Street Journal report said that the Treasury was considering offering 4.5% note rates to borrowers purchasing homes; an announcement came from Fannie Mae allowing servicers to modify even loans that are current; as well as a statement by Federal Housing Finance Authority Director James B. Lockhart that the GSEs are looking at streamlined refinances without a new appraisal, according to a recent Merrill Lynch report.
Since the day before the announcement of the Fed program, current coupon yields have declined by a 103 basis points, from 5.34% to 4.31%, Merrill analysts said. Current coupon yields as of last Wednesday's close were at record lows, according to the bank.
The ABS business also saw confidence in the value of a monoline wrap. Last week, Assured Guaranty Corp. provided a surety bond guaranty of up to $1 billion for the benefit of Jupiter Securitization Co., a multi-seller ABCP conduit administered by JPMorgan. The guaranty will provide a portion of Jupiter's program-wide credit enhancement. This is the second JPMorgan-administered ABCP conduit program to which Assured has provided credit enhancement in 2008, the monoline said in an announcement last week. In July 2008, Assured provided $1.25 billion in surety bond protection to the Park Avenue Receivables Co. commercial paper program.
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