Large Portfolio Sale Tests RMBS Appetite

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A large portfolio sale by a European bank is set to test market appetite for non-agency residental mortgage-backed securities (RMBS).

Sources say a list went out Monday for the $8.7 billion sale resulting from a European bank’s liquidation of five collateralized debt obligations (CDOs), PICAR 2009-1A - 5A, backed by the bonds. Bids will be taken next Tuesday, May 28. 

The latest disposal comes just one week after Freddie Mac announced plans to sell $5 billion in RMBS this year and Fannie Mae announced plans to sell a $2.2 billion list of legacy CMBS bonds.

The originator and seller on the latest deal is named as Royal Bank of Scotland and the underwriter is listed as U.K. bank,  Llyods TSB, said a source familiar with the bid list.

One fixed income asset manager, who declined to be quoted by name, said that everyone is focused on the trade and “holding their breath to see how it is digested.”

The portfolio sale should is expected to be reasonably well absorbed. “We are a little cautious near term on prices because they have gone up so quickly but do not see this causing much longer term problem,” said one analyst at BofA Merrill Lynch who spoke to ASR.

On Friday a BofAML securitization report said that lower volumes of bids wanted in competition (BWIC) has led investors to look at large portfolio sales out of Europe as the next potential opportunity to source bonds in considerable size.

BofAML calculated in the report that foreign investors still hold $194 billion, or 21%, of the outstanding non-agency universe, according to figures reported by Inside Mortgage Finance.

“With valuations so firm, people see that now it’s a good time to sell,” said the fixed income asset manager.

Fannie Mae this week also released details on its sale. It will be the first widely distributed list to include multi-family bonds, according to a Deutsche Bank securitization report.  

There are 17 bonds in the list with an average balance of $129 million and each is 42% of the entire class balance. Each CUSIP is being offered all or none. 

Deutsche Bank expects there will be limited impact on pricing in the broader secondary market. “The market has softened over the last week and the size and uniqueness of this list will put further pressure on spreads,” said Deutsche Bank analysts.  “However, the scope of the potential widening should be limited and short," they said.

“After the uncertainty regarding execution passes and fears of another large list in the near future wane, the exercise (assuming it trades well) could form the basis for the next tightening cycle in related subsectors.”

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