Last week got off to a slow start as a good number of ABS folk recovered from hangovers that tend to follow the brutal CFA exam. By Tuesday, only Banc One had priced a credit card transaction for a total of $750 million. But it was very much a New York Knicks week for the securitization market, which was expected to see almost $8 billion in transactions splashed into the bucket before Friday's close.
Spreads continued their widening trend though, as the 30-year benchmark Treasury crested 6% for the first time in more than a year. The rising yield in Treasurys, the pricing-in of one, possibly two rate hikes, the beginning of the quarterend rush, and many buysiders are bloated on ABS paper have combined to darken clouds on the issuer front.
Those issuing fixed-rate amortizers suffered the most, posting scores five wide of premarketing blather. Floating-rate spreads unfurled as well, but only two or three basis points.
"You've got a combination of a bearish market plus lots of supply," said an investor. "Things are a little sloppy. The average investor is overweighted in the spread pocket to begin with."
Most two- and three-year pieces found oversubscription, said a buysider, while the four-, five- and six-year tranches gave sellers trouble.
One investor took down the seven-year in Contifinancial's $800 million home equity offering. He bought the bonds at 170 off, whereas the debt was originally talked at 160 to 165.
"Frankly, there's nothing wrong with Conti, they're really one of the better people at this. But it's like anybody who's solely dependent on gain-on-sale accounting, they're having trouble financing themselves," he said.
Secondary And Pipeline
A whopper of a bid list came due the middle of last week. Credit card collateral - mostly floating-rate - was traded from People's Bank, Metris, MBNA, Discover, First Chicago and Chase. The secondary showed the same widening as the primary market. Metris' 3.4-year garnered 26 over the bench, and Discover's 0.34-year traded way out for the short-end at four over the curve.
Despite the volume of home equity paper that has already priced this quarter, Banc One is launching a $500 million HELOC deal next week. The deal will be bookrun by Morgan Stanley, and co-led by Banc One itself - an anomaly according to some investors. The Columbus, Oh.-based firm last came to market sporting a HELOC in 1998's first quarter.
Outsmarting The Sheriff
Conversation over the shift in market technicals has centered squarely on the inflation-skittish Treasury, and what actions the Fed will take at the end of the month. These recent developments have affected the bond market by aiding in a backup in spreads making liquidity more difficult for some issuers.
"There's a negative tenor in the market," said one investor. "You've already had the Fed jawboning rates one direction, but now they're sending people out to chat about well, you know that inflation number was fairly scary last month. You really think they're setting us up for a rate hike?' The fed fund futures market is trading at a rate hike at the end of the month. Everybody's expecting them at least one notch. The average consensus of the market is that there is another notch to go, about October or November." - SK