After a short lull in pricing, guidance issued on several European MBS deals last week promises to add depth to volumes. About 20 billion ($26 billion) of notes were actively marketing at the week's start.
Year-to-date supply continues to fall below levels recorded at the same time last year, according to market reports. However, the pipeline for April holds some interesting names that should be met with strong investor demand, sheltering the market from significant spread widening.
Some spread widening has put an end to the 18-month tightening bias, signalling a shift in investor focus to downside risk. According to research from Dresdner Kleinwort Wasserstein, the five-year RMBS note widened by 1.25 basis points on the back of upcoming concentrated short-term supply and a limited investor base. CMBS has widened by one basis point at the triple-A level, and spreads have softened a few basis points further down the curve.
"We feel the one to two basis point widening should be taken in the context of how far spreads have tightened in the last 18 months," said analysts at JPMorgan Securities. "Going forward we believe ABS spreads will be more reactive to moves in unsecured credit spreads, particularly now that the ABS spread pick-up has eroded."
What's on in the week?
The Italian mortgage market has experienced 42% growth between 2000 and 2003, market reports maintain. Last week, the largest Italian RMBS deal to date was announced - a 3 billion transaction backed by mortgage loans from UniCredit Banca, a unit of UniCredito Italiano, one of the largest banking groups in Italy. Fast and slow pay triple-A rated notes are offered with 1.8-year and 6.7-year average lives, as well as double-A and triple-B rated notes. Morgan Stanley and UniCredit Banca are joint-lead managers on the deal. The provisional pool had a 51.6% weighted average LTV and 40 months of seasoning.
Dealers priced Unipol Banca's 655 million Castoro RMBS. The deal offered investors 622.5 million of class A notes and 26 million of single-A rated notes. Both tranches priced within guidance levels.
Guidance was issued for Saecure 5, the 1.2 billion Dutch RMBS transaction from Aegon Life. The class A tranche with a 4.8-year average life was talked at nine to 10 basis points over three-month Euribor. The provisional pool had 3.5 years seasoning and a 79.2% weighted average LTV.
From the U.K., Bradford & Bingley lined up the second issue from its Aire Valley master trust. The GBP1.5 billion ($2.8 billion) Aire Valley Mortgages 2005-1 offering backed by buy-to-let mortgages is expected to price in line with the first Aire Valley deal launched last September. The Aire Valley Mortgages 2004-1 priced at a premium to other U.K. master trusts across the capital structure on the back of investor perception of riskier underlying collateral and mixed views regarding the buy-to-let market's direction, market sources said. Aire Valley Mortgages 2004-1 is expected to do the same.
Lehman Brothers priced all tranches of its GBP400 million ($753 million) non-conforming RMBS Preferred Residential Securities 2005-1 offering at the tighter end of guidance except for the E class, which came in 25 basis points outside of talk at 325 basis points over three month Libor. "Last week we saw some spread weakness across the board, and AAA' subprime/non-conforming spreads widened by 0.5 basis points (to 14.5 basis points [for sterling piece] and 14 basis points [for euro piece])," reported analysts at Dresdner. "The two triple-A tranches of this deal have priced in line with these levels."
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