The European securitization market is expected to expand 15% this year over the estimated volumes predicted for 2005, which could set year-end 2006 volume at 325 billion ($389.2 billion), according to survey results published by the European Securitization Forum.
"Issuers consider securitization to be a reliable, efficient and cost effective funding source, while investors see continued value in the form of higher spreads relative to other fixed-income sectors," said the ESF survey.
Most collateral sectors are expected to grow, with the most bullish expansion predicted for the CMBS market. According to the survey, this segment of the market is forecasted to reach 60 billion in 2006, up 43% from 42 billion ($50.3 billion) in 2005.
But the survey also found that issuance growth of RMBS - the largest securitized product sector - is expected to slow by a rate of 5% to 160 billion ($191.6 billion) in 2006. According to figures reported by Fitch Ratings last week, issuance volumes for RMBS in 2005 grew by about 30% from 2004 volume.
Slow housing market
Several of the 10 member firms participating in the ESF outlook survey said reduced residential mortgage deals could result from a housing market downturn and the expansion of covered bonds issuance. Despite the availability of covered bonds as an alternative source of mortgage funding, Fitch analysts believe the continued tight RMBS pricing will maintain its attraction as a funding source.
"We may see covered bonds cannibalizing RMBS issuance in Portugal and Italy where specific legislation has been enacted or is pending," said Stuart Jennings, managing director in Fitch's European RMBS team. "Large originators in those countries may be going down that route, but in the U.K. prime originators have expressed interest to keep a twin track issuance program."
Though the survey participants expressed concerns that the U.K. RMBS market may be reaching a saturation point, Fitch analysts said repeat issuers are likely to continue issuing a steady stream of deals. Also, several new players in the non-conforming sector are expected to use RMBS as their funding method of choice.
"There are more issues on the horizon in more aggressive loan features being offered across Europe, while the flatter U.K. housing market could have a dampening effect on issuance volumes," Jennings said. "Issuance in the U.K. has picked up again in recent months, but this could be due to some lenders stretching their underwriting criteria. Generally, as collateral features become more aggressive, we may see new issues not performing as well as in the past."
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