As players predicted, significant activity hit the asset-backed market last week, in the backdrop of what some players are calling an "elusive" equity market - the Dow Jones hit the ground while the Nasdaq broke the 5,000 mark.
In ABS land, swaps were out three to four points on the week, and demand for short-term paper continued strong. The divide fell at the three-year mark, said one source, citing the Case New Holland Equipment Trust.
"They had to widen out the three-year tranche, but everything inside of that was gobbled up," the source said.
"The problem is that I've seen, in general, some difficulty in getting some of the three-year and longer tranche asset-backed deals getting done," the source said. "You can say swaps were hit by the volatility in the equity market, and spreads tend to move with that."
WFS Financial widened price talk four points - in line with swaps - on the A-4 tranche of its auto loan-backed deal, just before bringing it to market.
The transaction, which was managed by Bear, Stearns & Co. was structured in four parts and featured a wrap by Financial Security Assurance. The shortest piece, a 0.39-year, $216 million A-1 class priced at two below the EDSF, on the tight end of talk. The longest piece, a 3.25-year, $279 million A-4 class priced at 90 over Treasurys, in line with revised guidance.
Overall, the ABS market trails last year by approximately $2 billion, though analysts, such as the team at PaineWebber, are seeing as much as $6 billion in issuance each week through quarter end.
Mortgage-type product continued seeping in last week, with two separate deals - one floating- and one fixed-rate - from RFC's Residential Asset Securities Corp.
Though home-equity deals are in the pipeline, year-to-date totals fall nearly $1 billion short of what the market saw last year at this point, according to Thomson Financial Securities Data.
Watch for an RFC high-LTV deal, which should price ten or so points behind what we've seen, one source said.
The New Economy
Though the effects are somewhat indirect, the see-sawing equities market has had an interesting impact on the bond market, said Dan Nigro, an asset-backed trader at Chase Asset Management.
"We all know Alan Greenspan wants to slow down the economy," Nigro said. "He's pointing to asset values as being overheated. But the rise on interest rates doesn't seem to be putting the brakes on the quote-unquote new economy."
Nigro compares the model to a balloon full of cash.
"If you push down on the one side - the old economy - the cash continues to chase the higher returns on the new economy," he said. "And until they can get that straightened out, what it does is it keeps the bond bears growling."
As long they're "growling," there's a problem, he explained, because the "bond bears" continue to look at the equity market with a skeptical eye.
"So what you have is this dichotomy between the brains of people in the bond market," Nigro said. "The rational side of the brain says interest rates have to go up, and the front-end of the curve's taking the brunt of it. And the irrational side of the brain is just loving life as they watch their equity holdings increase in value."
