European ABS volumes look ready to hit another record this year - nearly $350 billion according to market sources - as the December pipeline resists the holiday lull. Pricing spreads are expected to see a repeat of late 2004 and withstand supply pressure as consistently strong demand drives pricing on ABS bids.
Over the past 10 years compound annual growth of European ABS has exceeded 30%, according to analysts at Morgan Stanley. Firm growth is expected to hold in 2006. "We view ABS as a defensive asset with the added plus of holding a nominal spread advantage over similarly rated corporates," Morgan Stanley analysts said. "In the stable spread environment of this year, European ABS have outperformed corporates on a total return basis by about 0.2% year-to-date. Next year, we expect a similar result if spreads remain range-bound, and even better ABS relative performance should credit spreads widen."