Asset-backed securities issuance surged last week, and as deals broke across all sectors, demand reeled spreads further in - rallying into the secondary market, sources said.
At press time total issuance hit the roof at $4.8 billion, compared with last week's $2.3 billion.
"The whole market's been pretty firm lately," one trader explained. "I guess everyone wants to take advantage of it."
There was significant tiering between names last week, reflecting the demand for stable, well-established issuers, one trader explained. "For some names, you could buy a three-year at 26," the trader said. "And with a better name, you could buy a five-year at 19."
Overall, the source said that spreads along both the primary and secondary markets are at a low point, compared with recent trading.
"For example, the five-year floating credit card sector, that market - it didn't come in that much - but a few weeks ago it was probably as wide as 22 basis points over, and now it's trading anywhere between 17 and 18, depending on name."
In the credit-card sector, top tier issuer MBNA Corp. came with a $500 million deal structured in three tranches. The larger, five-year $425 million A-class priced at 77 basis points over U.S. Treasurys, just tight of initial price talk, which was 77 basis points to 80 basis points. A five-year, $37.5 million B-class priced at 100 basis points over Treasurys. Another $37.5 million in bonds sold privately. Lehman Brothers was the lead manager.
Meanwhile, in the home-equity loan sector Oakwood Homes priced a long-awaited, $268 million HEL deal. "They were in the market a couple of months ago, then they vanished, and finally they got it done," one trader said. "I think that's pretty big. I think either Fannie or Freddie bought most of it, but the subs are still out there."
Spreads and Demand
According to published reports, the Federal Reserve played a large part in last week's heightened tone, as the decision to raise short-term rates a quarter percentage point settled short-term uncertainty as to what interest rates were going to do. Raise 'em, the Fed said.
Tightening spreads in the secondary market also reflected a buyside fear of having too much cash in December, one analyst explained.
"What's interesting is that the supply picture has been fairly steady or even-Steven, and surprisingly I think we're finding more investors with a little more cash to put to work than people had anticipated," the analyst said.
"I think a lot of people are saying, Yeah, the market dynamics are looking good,'" the analyst said. "So that's all helping spreads notch in a bit. The tone is actually very positive at this juncture. So I think that A, supply is sort of winding down, and B, investor still have cash that they can put to work on the deals."
The analyst also said that what loomed in summer time has now softened: Y2K is not a risk. "I think the large financial institutions, the large credit card banks have gone to great lengths to say, we're really Y2K compliant, we're going to tell you a hundred times," the source said. "I think that most investors believe that and bought into that, and are comfortable with it."
Issuance should be slow from here, market players agree. The month of December will be fairly quiet.
"I think things will kind of tone down a bit," said one trader. "We're just looking to year 2000."