In the midst of downgrade madness, multiple firms are noting that ABS-backed collateralized debt obligations have yet to get hit, despite pricing wider than the high-yield deals.
Both Deutsche Bank and UBS Warburg put out recommendations for ABS-backed deals last week. Currently, triple-A classes of ABS CDOs price five to seven points outside of high yield deals, according to Warburg. The firm sees a bias toward tightening for those deals, so that the deals will eventually price in line with the high yield deals.
Warburg also notes that the spread range on all investment-grade classes of the high yield deals have come in over the last two months (for tier one managers).
Still, this year saw the first CDO to have its triple-A tranche downgraded, and since then (counting synthetic deals), nine have followed suit, Warburg points out.