First quarter issuance topped the 61 billion (US$75 billion) level, though the mountain of new issues has had little impact on the tightening bias that took hold this quarter. Things cooled down last week as the market visited Geneva en masse, though the question still lingers: How tight can it get?

"The proven performance of securitization over a couple of cycles, and the realization that this is a value market, has sparked interest particularly from outside investors who don't see the same spread volatility here as they would in the corporate market," said one industry source at this year's ABS Summit. While spreads have dipped much lower than investors anticipated at the start of the year, new demand and further volatility among corporate names could tighten the market further, by at least one to two basis points.

"And worries that improving fundamentals on the corporate side could mean a mass exodus from the ABS market are unfounded," the speaker said. "I think these new buyers are looking at the market with a long-term strategy - they are here to stay."

The outstanding market performance has encouraged nontraditional investors, such as asset managers, to look at the relative value play where spreads in ABS sometimes double or even triple the levels found in corporate spreads. Also, while the market is at a record pace so far this year, it hasn't been enough to keep up with the growing investor base, sources said.

This fundamental shift in market mentality can also in part be attributed to Basle II: Investors are taking a longer-term view in terms of potential risk weightings going forward, and technicals continue to override fundamentals as a result. Finding value at today's market levels depends on where the investor is coming from, said sources. "[If] you want spread but need liquidity as well, then CMBS might not be the way to go," said a market source. "Nonconforming issues a year ago came in cheap but spreads have also dramatically tightened in the current market."

"It's difficult to understand what credit tiering is right now because it has generally disappeared," the source continued. "People seem more concerned with buying than with whom they are buying it from. Such a market scenario loses credit tiering across issuers and asset classes."

The rush to buy paper means some investors are doing marginally less work when looking at deals at the triple-A level and relying more on historical performance. "Some sectors, I think, are being overlooked, like NPLs," a panelist said last week. "There is enough history there to tailor views based on portfolio performance. We can sell that story to the market and draw up points where the relative value is."

However, industry participants emphasized that in the end, investors determine what they are willing to pay.

"These may not be the best levels, but as long as people are willing to pay, we will continue to see these spreads," said one market source. In the short term, there is little indication that spreads are set to widen. Apart from reflecting sensitivity to geopolitical situations, less supply exists in the global credit markets.

As Easter follows closely behind the Geneva conference, little activity is expected on the primary front. That said, Tesco was expected to close its books on its GBP632.5 million (US$1.17 billion) sale/leaseback transaction this week at Gilts plus 85 to 90 basis points for the single-A rated notes, and 145 to 150 basis points for the 25-year dated tranche. Citigroup Global Markets was also in the market with a 775 million (US$955 million) sale/leaseback transaction for Nordea Bank's Scandinavian office. The deal includes two single-A rated classes of floating-rate notes, which were talked in the high 30s and mid-60s over Euribor, respectively.

Alehouse Finance will return to the ABS market to refinance all current outstanding notes under its existing securitizations, including 2001's tap issue. The new

transaction will include GBP35.5 million (US$65.8 million) of triple-A floating-rate notes, one single-A rated GBP135 million (US$250.4 million) fixed-rate piece and a floating-rate triple-B class totaling GBP67.5 million (US$1.25 million). Morgan Stanley leads the deal. The Italian Government is planning to securitize loans granted to private

industrial companies through a new CLO, similar to the Cassa Depositi E Prestiti's 3.3 billion (US$ 4.07 billion) deal done last year.

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