The typically slow start to the year was replaced instead by rocketing RMBS activity in Europe. While the pipeline remained relatively stagnant during the first week of February, industry sources were already counting on a variety of deals expected to make their way into the lineup over the coming weeks.
According to industry data, European volume in January reached over 17 billion (US$21.4 billion), almost double the volume recorded this time last year. Over half of the activity was packaged in two deals - an RMBS master trust deal and an Italian government deal.
The pipeline was dominated by RMBS paper, which continued to drive spreads in tighter right through the month. "Many investors expecting bargains at the end of 2003 were disappointed since the ABS sector did not experience its traditional widening in a busy (fourth quarter) primary market," said analysts at JPMorgan Securities. "In the opening weeks of 2004, spreads have moved in tighter, particularly for the subordinate tranches of ABS."
Deals pricing last week indicate that spread levels continue holding tight, at least for the short term, said one market source. HypoVereinsbank priced its 3.5 billion (US$4.4 billion) synthetic RMBS issued under the KfW-sponsored Provide platform. Triple-A notes priced at 30 basis points over three-month Euribor - tighter pricing levels than deals issued under the platform in 2003. Nonetheless, it still offers investors a pickup over RMBS deals issued in January. The deal was well oversubscribed at all levels and priced its double-A piece at 58 basis points, a single-A piece at 80 basis points and a triple-B piece at 180 basis points.
ABN AMRO and Citigroup issued guidance on the 1 billion ($1.25 billion) Dutch RMBS, Arena 2004-1, from issuer Delta Llyod. The class A1, floating-rate triple-As are talked in the 20 basis point area over the three-month Euribor while a fixed-rate triple-A is talked in the high-20 basis point area over swaps. The deal was expected to price by the end of last week.
Meanwhile, price talk for Kensington Mortgages RMS 17 came in well inside the levels talked for its last transaction. The latest GBP650 million (US$1.19 billion) non-conforming RMBS deal saw its $480 million Class A1 tranche talked flat to two basis points over Libor. RMS 26 priced its class A1 notes at two basis points over Libor last September.
At least another seven RMBS deals are expected to price this quarter, according to one market source, including HBOs' Holmes Financing and Abbey National's Permanent Financing master trust structure. The Italian lease financing deal from Banca Intesa, originally slated for issuance last year, is also expected to debut in the coming weeks. Market sources said that at least five CMBS deals are slated to come to market, along with the U.K. government-related securitization of London Underground ticket receivables.