Activity has certainly dropped off this week with nothing to speak of in the new-issue pipeline and secondary trading quieted to a few bid lists. If there is anything to be gleaned based on recent activity it is that the pace of new issues, if anything, is lower than expected, making a good case for tighter spreads to come.

The credit curve a week and a half ago was widely viewed as too flat for comfort with lower-rated credits trading at or near historically tight levels. Some of that concern was mitigated with the pricing of the Wachovia conduit on Wednesday, May 15 as triple-B tranches printed 15 basis points wider on average than comparable deals of recent weeks (see the CSFB 2002-CKN2 and BACM 2002-PB2 issues), steepening the credit curve by 20 basis points over the week to near 84 basis points, near their 2001 average of 87 basis points.

Skepticism for those pricing levels was rewarded the following day with a bid list of triple-Bs garnering five to 10 basis points tighter levels than the new issue, suggesting that market levels are somewhere between +115-130 basis points to swaps for triple-Bs right now.

Elsewhere on the credit curve, triple-As (trading at +46-47 basis points to swaps) are expected to at least hold, if not tighten, because of the improving fundamentals in the conduit sector and lack of supply. Greenwich Capital Markets estimates that the $19 billion in domestic issuance through May 2002 is 45% below last year's pace and suggests that by year-end, triple-A spreads could trade at or through 2000 tights of +38-40 basis points.

The next conduit likely to come to market is an offering from the Tier One Paper program via Wells Fargo, Bear Stearns, Morgan Stanley, and Principal, dubbed TOP-7. Pricing is not expected until next month but look for premarketing to begin next week.

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