In a clear sign that everyone's getting more comfortable with ABS, JPMorgan analysts reported that about $18 billion was issued in the market during the first three weeks of September.
This month's issue of ASR offers yet more evidence of this newfound confidence in both consumer, and more off-the-run, sectors.
In this month's cover story, John Hintze delves into the workings of the catastrophe bond market - a sector that's thriving on ever-high investor demand.
Since the first cat bond in '97, issuance has ebbed and flowed. An example - volume climbed to $5.2 billion in 2010, only to drop to $4.5 billion the following year. Now we're clearly in the upswing of the cycle. With the $6.5 billion issued so far this year, the 2007 record of $7 billion is well in reach.
The bump up was because of one issuer - the State of Florida, which in April priced the largest cat bond ever from a state-related entity. The transaction might serve as the catalyst for several new government agencies to take the securitization route, thanks in no small part to Sharon Binnun, CFO of Florida's Citizens Property Insurance Corp. and the main driver of the landmark deal. Also, John explores how the offering shows the market successfully adapting to issuers' needs.
In credit card ABS, issuance has roared ahead, even though banks are flush with cash and origination of new receivables has been slowing down.
In a story this month, Nora Colomer reports that credit card holders are keeping a lid on spending, with revolving debt down 6.6% July year-on-year after a dip of 4.4% in June, according to Federal Reserve data. What's more, banks have plenty of cheap deposits to fund new accounts.
And yet the first nine months of 2012 saw credit card ABS issuance reach $29 billion, nearly double the $16.2 billion posted in 2011. As Nora points out, deposits may be cheap but so are credit card spreads. Given investors' appetite for good-quality ABS, it's an auspicious time for banks to diversify their funding sources.
Fueling all this buyside demand are allocation targets that investors have been struggling to meet, according to Nora's other story. This has also led to oversubscription in recent deals. Add QE3 to the mix, and things seem to look good for ABS demand.
Bill Berliner also talks QE3 in his column this month. He says that although the Fed's commitment to buy a considerable amount of agency MBS is a highly visible boon to demand, there's another, less-discussed drain on supply: the hike in GSE guarantees. By hitting the consumer mortgage market, higher fees can weigh on MBS issuance.
G-fee increases from both Fannie and Freddie have exerted upward pressure on mortgage rates, while impacting conventional mortgages by affecting how Fannie and Freddie MBS are pooled.
Also in the world of mortgages, Felipe Ossa reports on the results of a critical audit of Spain's banks by Oliver Wyman, with the results due right after ASR comes out. Spanish covered bond experts say restructurings based on the audit can have any number of effects on the sector, from depressing real estate prices (negative) to eventually yielding stronger banks with more clearly defined collateral (positive).
All in all, not a bad start to the last quarter of 2012.