Europe's ABS Shortage Creates Concentration Risk

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Limited opportunities to invest in European securitizations could drive investors into other markets to avoid concentrations risk, says Barclays.

According to the report, numerous continental investors are restricted to investing in euros.  Their primary opportunities in the new-issue market have been restricted to Dutch RMBS and auto ABS sectors, and most recently in CMBS.

The Barclays report looks at Dutch RMBS issuance, which is the only continental European RMBS sector currently active in the primary market. In 2013, €3.8 billion of Dutch RMBS bonds have been publically placed with investors, backed up by €9.1billionn of privately placed bonds.

“If the Dutch RMBS issuance market remains below the levels seen at the height of the market and focused on the small select programs, we expect investors to continue to struggle against concentration limits,” said analysts in the report.

Over the short-term, this supply and demand imbalance is likely to provide technical support to the overall Dutch RMBS secondary market and protect it at times of volatility, “particularly as concerns also continue to grow regarding the state of the Dutch economy,” said analysts.

But over the long-term, a shortage of securitization investment opportunities means investors will have to eventually look to put money to work in comparable sectors, such as covered bonds. 

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