So begins the Arizona conferences, an annual, two-week-long market hiatus for a considerable portion of the U.S. asset-backed population.
This year, the sessions start on the heels of a record-breaking month of issuance - the heaviest January in the history of the ABS market, according to Thomson Financial Securities Data.
Last month, there was more than $25 billion issued into the public market, compared to $8.3 billion in January 2000, or $6.8 billion in January 1999.
"This year we're off to an incredibly fast start, and most of the people I've talked to have been incredibly optimistic with respect to this year," said Brian Clarkson, managing director of the asset finance group at Moody's Investors Service. "Volumes are high, and it could be a record first quarter - it's always hard to find the real issues when people are so euphoric, although we're going to try."
Clarkson will be the session facilitator for this week's opening ceremonies at ABS West, hosted by Investment Management Network.
"The record-breaking month pretty much says it all, and it was in many respects demand-driven," said Christopher Flanagan, who heads up ABS research at J.P. Morgan Chase.
There was a strong bid from floating-rate investors, both U.S.-based and from overseas. The easing bias of the Federal Reserve Board, which dropped the overnight discount rate another 50 points last week, has been a key factor in the sector's vitality, Flanagan said.
"Domestically, there's pretty solid demand for what the asset-backed market is going to offer - solid names and incremental yields, and liquidity," he said. "That demand is key, because what it's saying is that funds are flowing through the system."
As was a major theme toward the end of last year, auto issuance has continued to increase its market share, accounting for roughly 36% of the volume, or $9.1 billion last month. Market share in the auto sector has consistently been in the low-to-mid 20th percentile over the last five years, peaking in 2000 at 25.8%.
The increased issuance was partly attributable to the spread blow out in the corporate market, which made ABS an attractive funding source for large on-the-run names like Ford Motor Credit and MBNA.
Meanwhile, as the corporate market has shown some tightening over the last few weeks, it's likely that less on-the-run sectors will benefit, as investors search for value.
"The asset-backed market now has some attractively priced assets to go, and I think investors are going to respond to that, and they should," Chase's Flanagan added.
While overall industry tone is widely positive, the impact of a slowing economy on consumer credit is being closely watched by analysts (see Observation p.30), and will probably be a topic of discussion at this year's conferences.
Interestingly, last year going into the conferences, Treasury reduction and a search for replacement benchmarks was a major theme.
At this point last year there was still a little bit of the Y2K hangover, and spreads in the ABS market had just begun to recover. Also, Flanagan noted, last year at this point, the Fed's position was less clear than it is now.
"I don't think people really knew that the Fed was going to be as aggressive in tightening as it subsequently became," he said.