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European Primary Still Fully Retained by Issuers

European cash spreads continue to show signs of tightening. This indicates that investors might be stepping back into the arena.

"We observe that bids are starting to include a considerable range of asset classes," UniCredit Markets & Investment Banking traders said. "Prime Italian and Dutch RMBS as well as German RMBS are in demand [and] bids are placed at considerable sizes." Traders also noted that bids have also been placed for U.K. RMBS paper.

U.K. prime CDS continued to tighten. Deutsche Bank said that financial CDS traded inside of comparable corporates for the first time since September 2007.

According to the Royal Bank of Scotland, European ABS CDS spreads tightened further on the news of the new special liquidity scheme from the Bank of England. CDS are now at levels seen around the beginning of February - names across almost all asset classes tightened by about 10 basis points at the start of the week. U.K. prime names are currently trading at 80 basis points/105 basis points, Spanish low-LTV and high-LTV names at 115 to 195 basis points and 190 to 290 basis points, respectively, CMBS at 130 to 210 basis points, Italian RMBS in the 100 to 140 basis point area and Dutch RMBS names at around 70 to 90 basis points.

"It is too early to talk about stabilizing long-term prospects," the UniCredit traders said. "We do realize at least increased interest in paper, however, the supply overhang in ABS is supposed to be high!"

They added that if the recent trend of tightening on the cash side continues, the CDS on ABS market will lose momentum. Buying protection is not as significant and this is why market players will consider selling paper instead, the traders said.

The primary market also saw deals begin marketing, although most of the deals are still being retained by the banks. Bookrunners priced Gruppo Banca Sella's 224.7 million ($356 million) prime Italian RMBS, MARS 2600 Srl Series 2. All the notes were retained.

The portfolio has a weighted average current LTV of 50.7%, 30-month seasoning and regional concentration in North Italy (89.9%) and Central Italy (9.3%). The triple-A rated 4.8-year class A notes closed at 75 basis points, the single-A rated 11.8-year class B tranche came in at 100 basis points and the triple-B rated 11.8-year Class C notes at 115 basis points.

Lehman Brothers subsidiary ELQ Hypotheken revealed pricing details on its 265 million nonconforming Dutch RMBS deal, EMF-NL 2008-1.

The pool comprises loans with a weighted average current LTV of 98.6%, 4.2-month seasoning and with borrower classifications showing medium adverse or weaker loans making up about 47% of the pool. The triple-A rated one-year class A1 notes priced at 90 basis points, the 3.4-year class A2 tranche priced at 100 basis points and the 4.6-year class A3 notes priced at 125 basis points. All the notes were retained.

A new 800 million Greek RMBS for Piraeus Bank, Estia Mortgage Finance III also priced but was fully retained. The pool comprises loans on mostly owner occupied residences (70.6%) with a weighted average current LTV of 65.7%, 22.2-month seasoning and concentration in the Athens region (35.5%). The triple-A rated 5.6-year class A notes priced at 45 basis points and the triple-B rated 7.2-year class B tranche priced at 120 basis points.

IM Terrassa RMBS 1 FTdA, the 500 million fully retained Spanish RMBS for Caixa Terrassa, also priced. The triple-A rated 6.1-year class A notes priced at 30 basis points, the single-A minus-rated, class B tranche priced at 60 basis points and the triple-B minus-rated class C notes priced at 100 basis points.

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