The latest Barclays Capital European stress test on Dutch RMBS found that the sector is still as fundamentally sound as is generally believed.
“Dutch RMBS has historically offered some of the best performing collateral within European RMBS,” explained the bank analysts. “We use our stress testing to help investors determine how the financial market's crisis has affected Dutch mortgage performance.”
Barclays said it had increased its bond coverage to 201 tranches from the previous stress test of 118 tranches.
The stress test results, particularly in the severe stress scenario, which is considered more severe than a rating agency triple-A scenario, should give investors comfort: only 20 out of 201 tranches across 48 deals showed a potential principal write-down.
The Barclays test found that even in a scenario with a peak-to-trough fall of over 35% in house prices, there would be less than 1% of bonds (by volume) and 10% by number suffering a potential loss.
“We do not see any tranches with any losses in our base stress, highlighting the fundamental strength of the Dutch RMBS sector,” analysts said.