Not much more than a smattering of issuance priced last week, as a combination of market and non-market factors worked to keep volumes light. Most players were predicting continued softening of spreads in the asset-backed sector, as fears of inflation and rising interest rates have done their part to quiet the volumes and market exuberance which the spring had heralded.
One buysider who quipped that phone calls were not even getting traded among the various shops questioned the rationale of the few issuers that did test the water last week.
"Anybody who issued this week should be taken to an insane asylum," he said. "It's painfully quiet because of the holiday, the shortness of the week, the fact that a lot of people are on vacation."
Another said the lack of activity stemmed from his colleagues having to hit the books for a big exam.
"You've got the CFA exam Saturday which is taking a lot of buyside accounts out of the ballgame."
In terms of market technicals, most insiders thought that movements in the Treasury curve due to interest rate trepidations were making their mark, as the yield on the bellweather 30-year bond almost crested 6%, something that has not occurred since May 1998.
"I definitely think we're going to see wider spreads near term as long as there is uncertainty about interest rates," said an investor. "I don't see any big issues in autos and credit cards, but I would think the home equity market could suffer with rising interest rates."
A bit of a buyer's strike was being reported by some sources as many investors seemed to have met their allocations to asset-backeds amidst the hefty volumes in May.
"There's a lack of interest in all product, even treasuries," said one trader. "A lot of people have come already. A lot of the home equity issuers have come, people who're normally running late on their quarterend confines."
Swaps have supplied no nudge to asset-backed spreads, as they have not reacted in the usual way to cheapening bellweather bonds, which is to narrow.
"Normally if you see the Treasury market trade off two points, within a couple days, you'll see that reflected in the swap market, particularly in the ten-year market. But swaps have not tightened with the Treasury market trading off as much as it has," said an insider.
On the upside, the source said that he expected that at some point people are going to see that the yield on Treasurys are cheap and that spread product is even cheaper. This should spur investors to quit their sit-out.
A few billion in deals priced last week with decent execution, though spreads remained soft, as pricing occurred at times on the fat end of talk. Arcadia priced a $650 million subprime auto deal via Bank Of America. The deal owned five tranches and carried a wrap by FSA. Freddie Mac also threw its weight around with a $400 million home equity deal led by BancBoston.
As for upcoming issuance, Headlands Mortgage and GMAC both filed asset-backed shelfs with the SEC. Headlands registered to sell $500 million of mortage-related debt and GMAC filed a hefty $4 billion shelf to securitize auto debt. - SK