Spread Tightening Continues for Euro Securitizations

Register now

The lack of new-issue supply should support and keep the near-term positive spread trends in securitized collateral, according to a Citigroup Global Markets report released on Friday.

The firm reported that the only deal in the past two weeks has been a relatively small €350 million auto ABS that was preplaced to a select few investors.

With the current spread tightening trend, Citi is maintaining its core country focus strategy. The firm said that the lack of new-issue supply should keep the near-term positive spread momentum.

According to Citi, the OWICs (Offers Wanted In Competition) have become more regular as buyers are looking to the secondary market to find size. There was an OWIC earlier during the week for up to £120 million ($148.36 million) in CMBS and WBS senior bonds.

Generally, Citi said that European securitized products continue to tighten, with U.K. prime RMBS spreads improving a further three basis points this week. Specifically, the firm said that strong demand focus appears to be in two- to four-year weight average life bonds. A steep curve offers a significant uplift for a duration increase.  

Citi said that an extension of one-year in weighted average life can add as much as 20 basis points in spread.

As higher yielding sectors also tighten, bid lists are starting to emerge following  demand, the investment bank said.

A number of subordinate CMBS and peripheral RMBS bid lists traded in the market over the week as well as a large auto and U.K. prime RMBS list. In the previous  week, there were roughly €550 million of bonds on bid lists with various deals in CMBS, NC RMBS, and peripheral RMBS sectors, the firm said.

Trading in the lists has performed well and spreads continue to tighten.

Meanwhile, Credit Suisse also noted that U.K. prime RMBS spreads are still tightening as fears of diminished future supply heighten given the Bank of England's Funding for Lending Scheme.

Currently, the firm said that three-year U.K. prime is at about 60 basis points over the three-month Libor, which is in roughly 80 basis points for the year and at its tightest since the end of 2007.

"We are seeing a follow-on effect in higher-beta mezzanine and U.K. nonconforming shelves even with some BWIC supply," Credit Suisse analysts said. "There is limited trading in the periphery RMBS space but we are seeing better buying concentrated in Ireland, Portugal and the front-end in Spain/Italy."

For reprint and licensing requests for this article, click here.