After rushing to complete deals in time for the first quarter, issuers and arrangers pulled back last week, managing to complete about $4 billion in deals. That's well below the average weekly issuance of $10 billion so far this year, and sharply less than trader estimates of $7 billion. The market was simply catching its breath after a harried end to March, one trader explained.
"This is now the beginning of the quarter. Most people rushed to finish their deals before the end of the quarter, and they are kind of cranking up the machine again," said another trader. Some market professionals were also waiting for employment numbers to come out next week before plunging into ABS issuance again.
In its Securitization Monthly, Deutsche Bank observed that even issuance on a year-on-year basis has slowed down. The ABS market grew by 8%, or $271 billion, in the first quarter of 2006 compared to the same period last year, according to numbers from Thomson Financial. That performance starkly contrasts the first quarter of 2005, when the market grew by nearly 33% versus the same period one year earlier, the bank said. Deutsche blamed the lower growth on slow credit card and home equity issuance. Similarly, on a year-over-year basis, first quarter issuance of subprime MBS grew by 11%. That pales in comparison to the 23% growth that the sector achieved in the first quarter of 2005, according to Deutsche. Student loans grew about 24% thanks to a steady supply of FFELP and private loan deals, and CDOs jumped 52% "as the pipeline of cash and synthetic deals continued to work its way through the market," said Deutsche.
Last week, the market was marked by low volume and an array of small deals. The OWNIT Mortgage Loan Asset-Backed Certificates started activity off on Monday with the sole deal for that day, a $557 million home equity loan transaction via Merrill Lynch. Its senior and mezzanine tranches priced at guidance levels, with the one-year tranche coming in at six basis points over one-month Libor. Credit Auto Dealer Loan Trust came to market with a small deal, a $100 million issuance through Wachovia Capital, which was able to get pricing at 15 basis points over Eurodollar securities. Countrywide Securities sold $41.3 million in bonds backed by home equity loans through trust Countrywide Asset-Backed Certificates.
JP Morgan sold $910 million of real estate ABS through its JP Morgan Acquisition Corp., and the two-year tranche on that deal came in at 12 basis points over the one-month Libor.
Newcastle Mortgage Securities Trust floated a $1.41 billion deal through RBS Greenwich Capital, and got seven basis points over the one-month Libor for its one-year tranche. Home Equity Mortgage Trust came to market with a $250 million deal, via Credit Suisse. By press time, the three senior tranches and the two most junior pieces had not priced, but the two-year tranche came in at 16 basis points over one-month Libor, and the nearly four-year slice was 295 basis points over.
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