The week set off with an excess of 14 billion ($17.1 billion) circulating in the European pipeline. The strong supply is still maintained by a hearty appetite from investors, with the most liquid deals being well-subscribed and tightening further in secondary trades. "Though ABS investors have generally considered the market in classic supply and demand terms, European ABS over the last 3-1/2 years have demonstrated an inverse relationship," said analysts at Royal Bank of Scotland. "We are not sure how long this inverted relationship can last, especially if supply concerns are realized, but it is breathtakingly holding for now."
Dealers priced Northern Rock's upsized GBP3.75 billion ($6.7 billion) Granite 2005-4 at the wide end of revised guidance for its euro and sterling denominated tranches. The 1.0-year Class A tranches priced at three basis points and four basis points over Libor and Euribor, respectively, for dollar and euro denominations. The 2.4-year dollar denominated class A3 tranches priced at seven basis points, the 4.4-year Euro A5 tranche priced at 10 basis points over Libor and Euribor, respectively, and the 6.9-year sterling denominated class A6 priced at 12 basis points. Along with its size, which was initially offering GBP3.4 billion ($6.14 billion) of notes, average lives were also tweaked for several tranches. The shorter-dated dollar denominated notes were revised to 1.8-year from 2.0-year average lives and the initially marketed 3.5-year notes were shortened to a 3.1-year average life. "Demand proved strong for its sterling denominated 6.9-year A6 tranche, which absorbed the majority of the transaction upsizing, increased from GBP500 million ($903 million) to GBP815.4 million ($1.47 billion)," said analysts at RBS.