There's no doubt that the spread environment in Mexico has turned harsher, but sagging interest rates are mitigating much of the sting of the steeper spreads.

More importantly, domestic market investors remain open for business, as evidenced by an RMBS placed last week for 793 million inflation indexed units (UDIs) ($300 million). The originator, government agency Infonavit, paid a weighted spread over local treasurys of 118 basis points, up from 96 basis points on a deal last October. But the weighted yield of 4.62% was about six basis points higher.

Far from unnerved from the blown-out spread, the coordinator of Infonavit's RMBS program, Jose de Jesus Gomez, characterized the transaction as a success. He added that the agency's plan to issue Ps15 billion ($1.4 billion) to Ps20 billion is on track, and hasn't been altered due to global market volatility or spike in spreads.

While Mexican investors aren't vacuum-sealing their wallets like the bulk of their counterparts in the U.S. and Europe - there still hasn't been public MBS issuance this year in the latter region, for example - they aren't the pushovers they once were.

Gomez acknowledges that they've been tightening their scrutiny of collateral in the wake of the credit mess in the U.S. "I think it's a healthy thing," he said, adding that investors who parse collateral with care are vital to developing a long-term RMBS market in Mexico.

The Infonavit deal was split into two tranches. Both had legal finals of 22 years, but one had an average life of 2.5 years and the other a 6.5-year life. The deal marked the first time Infonavit had time tranched a transaction, an approach already taken by nonbank originator Su Casita.

In March, Mexico's domestic market witnessed five structured deals, with one backed by toll road revenue, two by mortgages, and two by bridge loans for construction, according to the research arm of local brokerage IXE. ABS issuance overall totaled Ps8.7 billion in March, a 13% drop from last year.

A few deals in the pipeline include an RMBS from GMAC Financiera, and construction loans deals from Credito Inmobiliario and GMAC Hipotecaria. An equipment leasing transaction from Unifin Financiera that's on the horizon has a partial guarantee from IXE Grupo Financiero.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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