Volumes in European secondary flows are light and investor participation is low, say market participants, adding that at the moment the secondary does not offer compelling value when compared to a solid European primary pipeline.

"The problem for the secondary market at this time is that the significant oversubscription levels for recent deals clearly demonstrates that there is a high level of demand for ABS product, even at these tight levels," explained Dresdner Kleinwort Wasserstein analysts. "This provides a solid floor to prices and makes traders unwilling to cheapen offers to the compelling levels that would grab investor attention." Analysts added that for the time being they expected secondary flows to remain light and particularly sensitive to primary sponsorship levels.

The only real flows worth noting last week were the electronic trading of Italian government bonds from the SCCI, SCIP and FIPF series of bonds. "MTS trading tends to pick-up when the general ABS market is quiet, and yesterday was yet another example of that," said analysts at DrKW.

The latest investor report for the Portuguese government's securitization of unpaid tax and social security receivables, Explorer 2004-1 did little to impact trading on the notes despite showing an improvement in collections. Fitch Ratings placed all tranches of the deal on negative watch in May, due to underperformance of cumulative collections versus its base case - the most recent investor report shows they are still behind the rating agencies' expectations. However analysts at DrKW estimate that if collections maintain at the current pace, all tranches of the deal should be cash good at scheduled maturity. Given these signs of improvement the 1.9-year triple-A notes tightened by two basis points, and traded at 15 basis points over Euribor. "The positive tone spilled over into Italian leasing paper, a sector that has lagged recent tightening, and generically it traded [one-quarter of a basis point] tighter on the day," said analysts at DrKW.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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