As the summer months approach and the quarter-end nears, the asset-backed market is warming up as much as the weather, with a free-flowing pipeline and a new issues calendar that only seems to get longer as the days go by.
"We have a little more positive tone now here at the beginning of the summer and that's good," said one market source. "We have actually seen that the economy has cooled off, and if that is indeed the case, that will help the supply picture. Investor sentiment is slightly more positive, that is a good sign as well."
Market participants are continuing to keep a close eye on the yield curve, which one trader described as being "pretty flat" and many are awaiting the Federal Reserve meeting scheduled to take place on June 27, although the general consensus seems to be that there won't be another interest rate hike. And hooray for fixed-rates, because the possible Fed inaction may mean more play for them in the future (See Fixed Rate, p. 1).
"If you look at the swaps yield curve from a year-and-a-half to ten years out, it's like a 4-6 basis point curve," said one source. "It makes the shorter stuff pretty attractive."
The secondary markets were pretty sluggish last week, one trader noted, with the focus being on the paper between a year and half to two years in maturity.
The end of last week brought on a surge of activity in regard to the new issue calendar. But market watchers can clearly see that the ABS market is not what it was compared to the amount of issuance seen last year around this time.
"In terms of supply this year, I think a lot of people are thinking we are going to see a fairly hefty dose of asset-backed new supply," said one industry source. "I think that's not going to happen. I think supply on the public side is going to probably be less than what it was last year. I think that is a result of the first five months, with people being so darn cautious and investor appetite being very tepid."
But looking at the bright side of things, issuance is picking up, sources said.
Deals that Priced
Last week, Sears priced a fixed-rate transaction backed by credit cards, which investors were starved to get a piece of. The deal, originally set at $500 million, was pushed to $850 million due to strong investor demand.
And maybe this is a sign that the credit card sector is inching forward, one trader noted.
MBNA Corp. issued a $882.4 million floating-rate credit card deal that was led by Lehman Brothers. and co-managed by Banc of America Securities LLC, Merrill Lynch, & Co. and J.P. Morgan.
"I believe it was via a reverse inquiry which is why there wasn't much publicity about it," said one trader. "It priced at three months Libor plus 12.5 which is a fairly rich level."
A Loaded Pipeline
At press time, Chevy Chase was expected to price a $359 million auto-backed deal. The transaction, which one trader described as having average lives typically seen in auto ABS deals, will be managed by Salomon Smith Barney.
Great American Leasing is also working with First Union Capital Markets on a $213 million equipment-backed deal. The senior/subordinate structure is expected to have average lives ranging from 0.4 to 2.6 years.
There is also talk of a possible credit card deal from Target Corp. (see Whispers, p. 12).