Through the first week of March, ABS volume in the international market is about 17 billion ahead of last year's pace, by most estimates, with year-to-date issuance at approximately 41.4 billion (US$50.5 billion). The mountain of supply, however, has done little to satisfy demand, as the expanding investor base continues to fuel this year's tightening trend, analysts said.

HBOS finally priced its massive 9 billion (US$10.9 billion) Permanent Financing No. 4 deal at tighter levels than last month's Granite 2004-1 RMBS deal. In fact, Permanent saw the tightest levels for master trust paper so far this year. And, like Granite, Permanent was significantly upsized yet still oversubscribed.

The market is still showing significant appetite for this type of paper, which should fare well for the anticipated 2.5 billion (US$3 billion) deal expected from Abbey National's Holmes Financing master trust. The mortgage provider was in the headlines last week facing a one-notch downgrade by Standard & Poor's to A+'/ A-' from AA-'/ A-1+'. The ratings action has caused its Holmes series to breach a trigger related to Abbey's position as account bank and GIC provider. Abbey is one to three notches away from further trigger events. Still, the downgrade should have little impact on ratings of existing deals, even in the event of a further Abbey downgrade.

The series' strong sponsorship and wide investor universe should prevent Abbey's paper from experiencing any dramatic widening going forward, said analysts at Morgan Stanley in comments last week.

Conditions bode well

"The European ABS market is about 85% triple-A and it has been around since the late 80s," said analysts at BNP Paribas. "Many accounts that have invested for years in triple-As can now invest lower down the capital structure, and with triple-A spreads so tight, they are increasingly doing this. With only 15% of supply coming out

at lower ratings, it isn't surprising to see single-A and triple-B spreads contracting."

At the subprime level, pricing is the best seen yet to date. The latest subprime deal to join the pipeline is Matlock Bank's GBP275 million (US$501million) Marble Arch Residential Securitization 2, through Barclays Capital. The deal offers GBP236 million (US$430million) of triple-A notes, GBP24 million (US$44 million) of single-A notes and GBP13.75 million (US$25 million) of triple-B paper - all tranches will be distributed in euro and sterling paper according to investor demand.

"When residential Mortgages Securities 17 (RMS17) from Kensington Mortgages priced on Feb. 10, at historically tight levels, having been at historical wide spreads just six months before, the structured credit world sat up and took notice," said analysts at Merrill Lynch. "Price talk for [Southern Pacific Securities] and [GMAC-RFC's RMAC] first surfaced at wider spreads than RMS, despite generally better pool quality and monoline wraps. After pricing, however, we believe tiering among originators has returned to appropriate levels."

Outside of the U.K. universe, more prime paper began circulating which should provide investors some repose from the heavily U.K.-dominated pipeline. A second deal from the Netherlands began marketing last week. The 1 billion Provide Lowlands deal from SNS Bank is being marketed through Commerzbank. The deal will include 62.5 million (US$76 million) of notes offered beneath a super senior tranche. The provisional pool has a 43% current LTV and 3.4 years seasoning.

Meanwhile, Barclays was expected to begin roadshowing its 625 million (US$762 million) Genova Hipotecario, issued through its Spanish subsidiary. This the fourth RMBS transaction the bank has launched in Spain.

Outside of the RMBS arena, talk of the first CMBS conduit from Societe Generale, dubbed White Tower, began circulating. Sources expect more to be revealed this week. The portfolio will consist of U.K. commercial loans originated by the bank.

Also outside of RMBS, Barclaycard priced its Gracechurch Funding deal last week. The triple-A and triple-B classes both priced within guidance, at three basis points over Libor and 45 basis points, respectively. Barclaycard's single-A notes came four basis points tighter than original talk at 19 basis points. Compared to Barclaycard's issue one year before, the three classes of notes came in two, four and 48 basis points tighter. "If these levels are achieved, banks may find a significant funding advantage in creating ABS over issuing unsecured paper," said analysts at the Royal Bank of Scotland.

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