The Federal Reserve Bank of New York is reportedly asking for bids for the remaining RMBS in its Maiden Lane II (ML II) portfolio.
ML II was created in 2008 to buy RMBS from the securities lending portfolio of various American International Group subsidiaries. This was done as part of the insurer's government bailout in 2008.
According to various published reports, the Fed's solication for bids came after at least one potential buyer approached the bank. The future sale comprises the last assets in ML II, which total $6 billion, the reports indicated.
This will be the third sale of ML II assets this year. The first two were held on Jan 19 and Feb 8.
In the last sale, Goldman Sachs beat four other firms, Credit Suisse, Barclays Capital, Morgan Stanley and RBS Securities.
The last sale was prompted by an unsolicited offer from Credit Suisse, which won the first competitive process on Jan. 19.
Proceeds from both Jan 19 and Feb. 8 sales will allow the repayment of the entire remaining outstanding balance of the senior loan the New York Fed made to ML II on the next payment date in early March. The original amount of the senior loan was $19.5 billion.
Ironically, the Jan. 19 transaction originated with a reverse inquiry by Goldman. In addition to Credit Suisse, Barclays and Bank of America Merrill Lynch also submitted bids in the first ML II sale of 2012.
Daily reports from Interactive Data on structured products showed that January’s sale was largely distributed to buyside customers, which is seen in the comparatively balanced proportion between customer buys and customer sells.
The two and a half week period between Jan. 20 to Feb. 7 showed an increase in trading volumes, probably resulting from the added supply that ML II contributed during that period.
By contrast, much of the Feb. 8 sale seems to have been retained, at least on that particular day, as shown by the disproportionately larger volume in customer sells sans the corresponding volume in customer buys, Interactive Data reported.
But, the very next day Feb. 9, showed a bigger-than-usual volume of customer buys, which might mean that there was a partial distribution of bonds from the February sale.
The data also demonstrated that the bonds sold as part of the ML II auctions were larger in size versus what has historically been seen in the past four months. Trades of bonds with remaining balances of over $100 million represented roughly 30% and 29% of the two ML II auctions, respectively, compared with typical averages close to 0%.
There was also a general rally that Interactive Data saw across all non-agency CMOs in January. Amid strength in most structured product asset classes in January, more credit-sensitive market segments had the most gains, Interactive Data evaluated prices have demonstrated.
In an apparent return of risk appetite, Alt-A hybrids, option ARMs, subprime, and more recent vintages, outperformed traditionally stable cash flows, such as seasoned deals and prime 30-year fixed-rate non-agency CMOs, Interactive Data said.