Moody's Investors Service said that although RMBS growth has slowed somewhat from previous years, it would remain a dominant asset class in the Japanese ABS market this year.
Analysts from the agency reviewed Japan's RMBS for 2006 and set forth its outlook for 2007 in a report. In 2006, new issues from the RMBS market totaled approximately JPY 5.7 trillion ($46.8 billion), according to a Moody's report. This marks a more than 25% increase from 2005's JPY 4.5 trillion, and Moody's expects the market will continue to stay strong throughout the new year.
"Growth slowed somewhat compared to the strong market expansion during 2003 through 2005, but the 2006 volume increase that made again RMBS the largest asset sector in Japan's structured finance market has continued to attract the eyes of the market participants," Minoru Kubota, Moody's senior vice president, wrote.
The rating agency believes that Japan's RMBS market will continue to hold market participants' attention throughout 2007. Because the Japan Housing Finance Agency will succeed the Government Housing Loan Corp.'s (GHLC) securitization support program after April 1, 2007, new issues from the public sector are likely to remain unchanged from last year. In addition, as part of the securitization support program, GHLC has a guarantee scheme and in December 2006 announced a tie-up with the Chiba Kogyo Band, Ltd. Although the scheme has yet to be utilized, it remains important as it provides financial institutions with increased access to the securitization market and can be a new growth driver in the future. Moody's also points out that megabanks are likely to continue leading new issues of private MBS in 2007.
"Moody's anticipates that the trends seen through 2006 will continue in 2007, but concern remains that the interest-rate environment is unpredictable, as demand for lifelong fixed-rate residential mortgage loans is subject to the performance of the long-term rate, and this will affect new issues of RMBS in 2007," Kubota said.
In addition, new issues may be driven by the launch of tie-up residential mortgage loan products from regional financial institutions and securities companies.
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