European RMBS deals could see more price tightening as the market moves toward a full implementation of Basel II. According to results from the European Securitization Forum (ESF) working group issuance forecast survey, although survey participants believe that Basel II has already been priced into the market, the new accord could still have the effect of increased demand for ABS products. This, in turn, should drive spreads tighter, especially the senior tranches in the capital structure.
The ESF survey asked member participants about Basel II and its effect on the pricing of securitization transactions. According to figures reported by the Royal Bank of Scotland, banks represent roughly 50% to 60% of European ABS investors versus approximately 20% in the U.S. Thus, Basel II rules hold strong implications for ABS demand, especially in Europe.