European ABS primary market issuance was fuelled last week by a number of large RMBS deals, with spread indications still pointing to strong investor demand. The performance has many believing the market is set to keep on ticking up to the rapidly approaching gathering in Barcelona next month.

Northern Rock's granite deal priced last Wednesday, and based on the demand, dealers were able to upsize the transaction to GBP3.65 billion (US$6.48 billion) from GBP3 billion (US$5.33 billion) originally on offer. An extra triple-A sterling tranche was added onto series 2, and price talk for the euro and sterling pieces tightened at the beginning of the week. Industry players noted weaker demand for dollar-denominated triple-A notes that saw the Class A 0.6-year notes price at four basis points over Libor, at least one basis point wider than price guidance. Its 1.8-year piece priced at seven basis points over, also one basis point wider than guidance levels. The euro and sterling pieces priced at 14 basis points, and the triple-A sterling piece priced at 16 basis points over Libor, respectively.

"Several investors reported full allocations even on the euro and sterling tranches, indicating that while there is still demand, the tightening bias may be coming to a close," reported analysts at the Royal Bank of Scotland. "We attribute part of the fullness for the senior tranches to Granite's active program and to portfolios already swollen with U.K. master trust deals as other sectors seem more resilient at this stage in the cycle."

From the Dutch side, pricing on the Saecure 4 deal issued by AEGON life closed in on U.K. master trust levels. The triple-A piece priced at 15 basis points over Euribor, one basis point outside levels seen on the Granite deal. All tranches priced at the tight end of guidance.

"This is the tightest pricing of a Dutch RMBS during the last five years," explained analysts at Dresdner Kleinwort Wasserstein. "With Dutch RMBS grinding even tighter recently in the secondary market, this deal has shaved three basis points, five basis points and 10 basis points off of the levels achieved by E-MAC 2004-1 for its triple-A, single-A and triple-B notes, the last Dutch RMBS to price back in March."

The 1.27 billion (US$1.51 billion) Hermes VIII, also listed on the selection of Jumbo RMBS Dutch deals, is expected to price this week along with the 1.01 billion Storm 2004. The triple-A notes are being talked at 17 to 18 basis points over Euribor for the Hermes deal, and Storm's triple-A are talked at the 15 basis point area. Storm's pool had an 86.8% weighted average LTFV and five months seasoning compared with Hermes' 108.2% LTFV and 16 months seasoning, and Saecure 4's 107.2% and 44 months seasoning.

And last week underwriters began marketing another 1.25 billion (US$1.49 billion) of Dutch RMBS paper offering investors a slice of Achmea Hypotheekbank's DMPL IV. ABN AMRO, Deutsche Bank and JP Morgan Securities are expected to lead the deal.

From Spain, Ayt Hipotecario is marketing a 510 million (US$906 million) RMBS deal for Caja Ahorros de la Rioja, Caja Ahorros de Vitoria y Alava, caja general De Ahorros de Granada and Monte de Piedad y Caja de Ahorros de Huelva y Sevilla. It joins an extensive Spanish RMBS pipleine that also includes the 1.4 billion (US$1.67 billion) Hipocat 7 FTA from Caixa d'Estalvis de Catalunya. The deal includes a triple-A rated, class A piece dated at 1.1 years; a triple-A rated class A2 six-year piece along with a double-A rated, none-year dated piece; a single-A piece dated at nine-years; and a triple-B note also with none-year average life. Guidance is expected by the end of the week.

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