A substantial sell off in the secondary spread-product markets last week, led by a money manager that dumped $1 billion of mortgage-backed securities into the mix, caused a minor widening in mortgage-related product, said one trader.
As for the secondary asset-backed securities market, players continued to "hedge the fixed, and everybody wants to be in floating," the trader said.
Namely, the bid for short-term, floating-rate paper remains strong, in light of an anticipated hike in interest rates.
Conseco Finance paper hit another downgrade last week, which added volatility to the secondary market, according to published reports. If anything, top tier names are outperforming off-the-runs in terms of liquidity.
Though spreads moved out 2-3 basis points on the week, they should stabilize in the near term, according to the research team at Banc One Capital Markets.
Cited from the weekly report, "Fundamentals in the ABS sector remain stable. However, we do not see demand for spread product to the degree necessary for wholesale spread tightening in the sector."
At press time last Thursday night, CountryWide was rumored to be readying a deal, though there was no sign pre-marketing had begun.
Two Card Deals
The demand for floating-rate product continued to sweeten the field for credit-card issuers, according to market sources.
Early last week Discover priced a $684 million deal led by Morgan Stanley Dean Witter. The deal was structure in two seven-year tranches.
Similarly, MBNA priced a $786.3 million deal, led by Salomon Smith Barney. Also offering bonds with average lives of seven-years, MBNA's $722 million A1-class managed to price one point inside of Discover, at 20 basis points over the one-month Libor. Though the deal priced through Discover, it hit the wide end of talk, which was Libor plus 19-20.
The A1-class of the Discover deal, which came at 21 basis points over the one-month Libor, priced within revised guidance levels, according to published reports. The subordinate, A2-class priced at 45 points over the one-month Libor, which was five points wide of original guidance.
Meanwhile, PECO brought the first stranded-cost transaction ever to have tranches priced off the swap curve index.
The deal, led by Salomon, was well received, according to market sources. Except for the 9.34-year, $351 million A4-class, which priced one point outside the talk of 10-year swap plus 28 area, the deal priced at least one point inside of guidance on each tranche. A 1.11-year, $110 million A1-class priced eight points off the 12-month EDSF, well inside the talk at 10-12 basis points.
In equipment land, CIT, via First Union Capital Markets, priced a $327 million deal structured in seven parts. While the .41-year A1-class priced just barely on the wide end of talk (five-month Libor minus 1, versus five-month minus 2), the .86-year A2-class, which featured a structural enhancement that made it money market eligible (see Debut page 2), priced one point inside guidance, which was one-month Libor flat.