The ABS West Conference that kicked off last week and the SRI ABS Conference currently being held all but put market activity in suspended animation, with a clear calendar and thin secondary volumes reported. This illiquidity made for some spread volatility, and market observers said things should be tame until this week.
One deal did make it to market last week, however. A $250 million offering from Impac led by Credit Suisse First Boston (CSFB) priced Feb. 7, with the front-end pieces seeing a bit of concession. The longer pieces met with rather commendable demand and printed on top of premarketing expectations.
"While we're looking at this slight black hole in activity for ABS, do note that whenever this slate of conferences takes place, it is almost as if we look for a new set of benchmarks for each asset class whenever everyone gets back," said an ABS market observer. "This year is no different, given the odd overinflation of spread performance for the sector these past few weeks. That said, expect a rather marked jump in clearing levels toward the middle of this month."
With some ABS players are not expected to stick around for the SRI conference to get a jump on the competition, there is likely to be a shadow calendar - super-large HEL, possibly cards - early this week, but a transaction print is still to be determined.
Some CDO activity was expected to fill the void from time to time, but outside of that, observers saw a rather uneventful trading period. A full CDO calendar was seen, but most of the collateral was real estate related, in the likes of CMBS.
Spreads have moved out on investment-grade collateralized bond obligations, based on January 2001 issuance: approximately four basis points on triple-As, five basis points on double-As, and 20 basis points on triple-Bs. As is usually the case with CDOs, spreads will be tiered based on the experience and size of the collateral manager or issuer.
"In general spreads are slipping out three to five basis points on (senior tranches) due to volatility in the junk bond market and even further on the lower tranches," said one portfolio manager.
Meanwhile, a flood of supply is due to start pouring out, which could put further pressure on pricing going into February. For example Salomon Smith Barney has four CDOs with an average collateral rating of BBB- lined up for later in the month. Salomon printed one deal already this week for hedge fund Financial Management Advisors (+54 on AAA) and is expected to launch Hampden (Mass Mutual) and Madison Avenue II (Met Life) shortly.
It is also rumored that CSFB is preparing a $750 million jumbo CDO backed 75% by loans and 25% by bonds.