The equivalent of more than US$21 billion of RMBS is expected to price in the coming months. If the tight spread levels forecast for the new deals are any indication of the market's appetite, buyers are more than willing to rekindle a love affair with the sector.
Apparently, the song remains the same, as the New Year kicks off.
At least one deal has priced in early January. The E1.47 billion (US$1.85 billion) Sienna Mortgages 03-4 priced its four-tranche offering. The transaction was issued by a combination of three Italian banks that included Banca MPS, Banca Toscana and Banca Agricola Mantonana. It's the fourth transaction issued under the series. The last transaction was issued in the fourth quarter 2002. The issue was met by strong demand from investors who were attracted by the relatively low 58.8% average current LTV and 23.5 months seasoning, according to market sources. All notes priced at the tighter end of guidance with the two triple-A pieces pricing at 10 basis points and 23 basis points over the three-month Euribor, respectively.
The Italian deal will be followed by three U.K. master trust issues that are expected to price by the end of next month. According to market sources, secondary trading remains tight with investors displaying greater appetite for Spanish and Dutch paper at the beginning of last week.
Among issues expected in the early U.K. RMBS lineup is the giant GBP5 billion (US$9.1 billion) deal issued under HBOS, Permanent Financing master trust, which will be issued through Citigroup Global Markets, Morgan Stanley and UBS. Similar to structuring seen last year, the deal will include a share of sterling pound-, euro- and dollar-denominated tranches. At press time, sources reported that around $1.4 billion is slated to be issued in dollars, which will include two triple-A rated tranches at three and five years.
The deal trails Northern Rock's GBP2.8 billion (US$5.1 billion) transaction issued under its Granite master trust, which is also expected to close this quarter. Granite will be managed through Barclays Capital, Citigroup and JP Morgan, and it will also be priced in sterling pound, dollar- and euro-denominated paper.
Guidance for the transactions' short-dated $1 billion triple-A piece came in line with market expectations at minus 4 basis points over the three-month Libor. Its $920 million triple-A piece was talked at 8 basis points and both the sterling- and euro-denominated triple-A pieces were talked at 17 to 18 basis point range. Industry sources noted that talk came in slightly tighter than pricing levels for last November's Permanent Financing issue, reflecting the spread tightening that has occurred since that date.
Also expected among the master trust melee is a GBP2.5 billion (US$4.5 billion) transaction from Abbey National's, Holmes Financing master trust via Barclays and Lehman Brothers. This deal should quell concerns about how securitizations will hold up to pricing levels achieved through the covered bond markets.
However, any fears of a decline in master trust issuance - an area that has evolved into the bread and butter of European investor portfolios - can be put aside for the moment. While U.K. banks are expected to continue toying around with structured bond programs, the product is not considered a replacement for securitization, where issuance remains strong. However, it may serve to cool down the consistent issuance seen throughout the whole of 2003.
Outside of the U.K., new Spanish paper began circulating. About 1.2 billion (US$1.5 billion) of RMBS paper began marketing for Caja Ahorros del Mediterraneo under TDA CAM 3. The deal is being marketed by JPMorgan and saw its class A notes talked at 23 to 24 basis points over the three-month Euribor and its class B notes talked in the 70 basis point area.