A timid European primary ABS pipeline highlights good buys from a secondary perspective, said market sources. The best bet right now lies on the side of consumer-related products with competitive bids for Dutch RMBS and Italian state ABS.
Frasier Malcom on the trading desk at Dresdner Kleinwort Wasserstein said in a commentary on the secondary market: "I think there is still a lot of value in some late 2001 consumer deals, most notably the Italian consumer-loan/lease sector. Relatively short dated deals such as Locat and Lombarda with good reoffer spreads look especially attractive. Deals with top quality collateral such as the Garda 2001-2 issue should also look attractive against the European RMBS sector."
Within the Dutch RMBS sector, performance was looking best for STReAM, which was trading below +23 basis points over the Euribor for both the U.S. dollar-denominated tranche and the Euro-denominated tranche - up from the +27 basis points it previously traded at. There were also good bids seen for older Dutch deals, said Malcom at Dresdner, and he cited the Dutch MBS IX series as performing well.
On the Italian side the lottery transaction (SCCPP) that closed in late 2001 saw bids on its A3 tranche come in a few basis points, trading at around +21 basis points over the six-month Euribor.
In a report issued by The European Securitization Forum (ESF) at press time, members commented on an increase in secondary market liquidity in 2002. At this point the lack of primary product is directly linked to this trend but going forward the ESF expects an increase in primary market issuance and strong investor appetite. They also say that larger-sized deals will continue to stimulate greater liquidity in the secondary market.
Additionally, the standardization of structured product and more transparent deals with increased disclosure should also promote liquidity, says ESF. Nonetheless the ESF notes that going forward, liquidity increase could be limited should the number of buy-and-hold investors rise; liquidity may also be affected if standardization and disclosure fail to improve.