Despite slipping volumes and decreased issuance last week, the pipeline continued to swell in the asset-backed securities market, with spreads moving in, especially in the longer maturities, sources said - all of which reflects healthy demand in asset-backed market.
"I'm really kind of surprised," said one trader. "We continue to grind tighter and tighter."
At press time, total issuance barely exceeded $2 billion. The sentiment going forward is that investors still have money to spend, and that they fear going into December with overflowing wallets, when supply is expected to be at a minimum.
The action in the secondary market showed a trend of buying down the credit spectrum, explained one trader, and buying down on liquidity, and heading in to "sectors like real-estate that were kind of neglected up to this point."
"I think the two-year to five-year part of the curve still hasn't recovered the same way in terms of spreads to where it was in May," said Dan Nigro, of Chase Asset Management. "There's still room to move, and yet seven's and ten's are a lot tighter, and it sort of reflects the fact that a lot of people wanted to add duration and absolute yield.
"Those kind of buyers are the ones that wouldn't do futures or treasuries," Nigro said. "They're more the traditional spread product-type buyers, so I think it's helped to tighten things up on the seven-year to ten-year-type sectors of the ABS market."
Of the few that came, the anticipated first-of-its-kind Barclaycard deal priced, with $1 billion in bonds backed by credit card loans originated in Europe. The transaction, managed by U.S. component Barclays Capital, was structured in three parts.
A three-year, $900 million A-class priced at 18 basis points over one-month Libor, two points over the 16 point guidance. A three-year, $50 million B-class priced at 43 basis points over one-month Libor, well within initial talk. A three-year, $50 million C-class priced at 90 basis points over one-month Libor, also within initial guidance.
In the home-equity sector, Countrywide Credit Industries came to market with a $120 million piece of a $340 million deal, wrapped by Ambac. The 3.69-year, A-2 class priced at 35 basis points over one-month Libor.
"Most of the Country deal was bought up in pre-buy by the agencies," said one trader, referring to Freddie Mac and Fannie Mae.
Harley-Davidson Inc. sold $175 million in bonds backed by motorcycle receivables. The three-part deal was managed by Salomon Smith Barney, with a one-year, $112 million A-1 pricing at 25 basis points over 12-month ESDF. A 2.79-year $52 million A-2 class priced at 79 basis points over Treasuries. The remaining $10.5 million were sold in 3.41-year certificates, and priced at 163 basis points over Treasuries.
As for the weeks to come, market players don't expect much more than what's already been marketed: names like GMAC-RFC, Enterprise Mortgage Acceptance Corp., Delta Funding Corp., Oakwood Homes (see story on page 1), and PeopleFirst Finance (see story on page 1).
The feeling is that we won't see a whole lot until January, and next year looks good, according to sources.
"Everybody we've talked to seems to think that pricing will get better in the first quarter and continue to get better through the whole year, but who knows," said an issuer. "I don't see any reason why it shouldn't get better. We're at historically wide levels right now. One would think it should get better."