The weakness in the U.S. markets may have European securitization participants apprehensive, but it has not been reflected in European ABS market spreads, which have proved resilient and, by some accounts, relatively immune to last week's global volatility. There are some signs that a softer tone is beginning to creep in at the triple-A level, but industry sources said it is nothing dramatic and there hasn't been any panic selling, yet.
Monday morning's bearishness led to further retrenchment in the ABX index with U.S. home equity lenders' share prices also reaching new lows, but the selloff continues to be very isolated, and has not negatively impacted spreads in the European ABS sector. Reports from Dresdner Kleinwort indicated that triple-A spreads still appear finely balanced, and that there is good appetite for paper, particularly at the yieldier end of the spectrum. However, analysts added that the market was seeing spread levels that indicated some resistance to vanilla product.
"The turmoil in global equity markets, combined with further selloff in U.S. market's closely watched ABX indices, which lost as much as 7.44 points in the 07-1 triple-A, but also some spillover into the triple-A indices due to Freddie Mac's announcement that it will stop buying subprime mortgages with a high likelihood of excess payment shock and possible foreclosure,' has more nervous eyes casting about for possible contagion in non-U.S. markets," Royal Bank of Scotland analysts said.
If issuance volumes are anything to go by, then the record month that the European market has had in February should lay to rest fears that appetite could shift away from the market. According to market reports, February produced deals worth 35.5 billion ($46.9 billion) - exactly one and a half times the amount of pricings for the same period last year (23.65 billion) and for January this year. And supply continues to replenish as quickly as these deals move out, with more RMBS transactions entering the primary market and raising the near-term visible European pipeline to 26 billion. While some softening is to be expected, subscription levels in non-U.S. transactions remain relatively high and spreads continue to hold with the added bonus of an increase in U.S. investors looking at non-U.S. products.
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