The week started off slow for European ABS market activity, but by midweek a number of deals hit the pipeline, promising an uptick in volume from the slowdown experienced since Easter. Demand for mezzanine and subordinate ABS, driven by investors looking for incremental pickup to historically tight triple-A spreads, continues to be strong.
"We still think moving down in credit and into yieldier sectors such as CMBS, nonconforming RMBS and CDOs of ABS is the appropriate strategy in the current market," said analysts at JPMorgan Securities. "In fact, we believe that mezzanine tranches from these sectors (although not in benchmarks like cards and RMBS) offer some of the best value in the market." Double-A CMBS tranches with a five-year maturity are currently trading at mid-40 basis points over three-month Libor, noted JPMorgan. At these levels, the paper still offers an attractive pickup when compared to double-A corporates or financials, which are both in the low 20 basis point area.