The May Day holiday-shortened week saw little activity on both the primary and secondary markets, but sources said the rest of May looks set to bring significant volume, as a number of transactions were on the sidelines, preparing to circulate before the close of the month. Analysts at The Royal Bank of Scotland said it could lead to some initial spread softening that is expected to be short-lived as there's still plenty of cash to be put to work in these markets.

On the U.K. front, there was some hefty volume accumulating last week, expected to price by last week's close. Paragon Mortgages was in the market with its new RMBS deal that will include two U.S. dollar-denominated tranches dated at 3.4-years and 5.9-years, and two sterling- and euro-denominated pieces. Northern Rock also began marketing Granite Mortgages 2004-2 via Citigroup Global Markets, Credit Suisse First Boston and Lehman Brothers. The deal will include two triple-A pieces denominated in dollars and two other triple-A rated pieces issued in euros and sterling. It's expected to close at the end of May. The market is also preparing for the launch of a new subprime issue from GMAC-RFC who is expected to launch its RMAC 2004-NS2 later this month.

Guidance for Egg banking Plc's GBP500 million (US$897 million) Pillar Financing was out last week with a multi-currency five-year deal, amid speculations that U.S. credit card issuer MBNA America Bank had taken an interest in acquiring the U.K. Internet banking unit. The US$780 million equivalent is a triple-A rated tranche talked in the 15 basis point area over Libor; the GBP25 million (US$44.8 million) single-A class was talked in the 45 basis point area and the GBP40 million (US$71.7 million) triple-B rated tranche at 110 to 115 basis points. Joint lead managers Banc of America Securities and Credit Suisse First Boston are expected to price Pillar this week.

The price guidance for the five-year triple-A tranche looked "reasonable in euro and quite generous in [U.S.] dollars," according to analysts at Merrill Lynch. When compared to the Gracechurch card deal, the five-year triple-Bs in dollar and euro denominations look attractive compared to the latter deals' three-year U.S. dollar-denominated paper trading at 45 basis points over Libor. MBNA's CARDS 2004-1 10-year sterling paper was quoted at 90 basis points over Libor.

"Gracechurch has a better performance record and the [highest] rated servicer," reported the Merrill. "Pillar has better performance but its servicer and series is less well-known. Therefore, if the Rule 144A Pillar Funding 04-1 five-year triple-Bs price anywhere outside 90 basis points they could turn out to be a tremendous value," analysts added.

On the CMBS front, analysts at Morgan Stanley reported that while allocations for the sector are currently at 3% compared with the 30% allotted in the U.S., investors continue to increase allocations despite the tight spreads of late. West Bromich Society's GBP205 million (US$368 million) triple-A rated tranche saw talk at around 20 basis points, in from initial talk at 25 to 28 basis points.

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