Time will tell if the improved rate outlook provided by the release of the CPI will tighten up the ABS market in the weeks and quarter ahead. Most investors took it as the first sign that another Treasury rally similar to last fall would be curbed and that sloppiness in the market lately would eventually settle out.
Still, last week saw more of the same as the ABS market remained soft. A big Chrysler offering and three home equity deals representing the spectrum of credit and debt quality in that sector all priced wide, continuing a trend begun weeks previous when trepidation of Fed action in response to inflation fears began to rear.
Though they were in the minority, some players thought that spreads were looking slightly better last week when compared with their peformance over previous weeks with swaps. So taking into account the caveat of quarterend and cyclical issuance patterns, spreads seemed to have stabilized a bit, these people said.
Chrysler Rolls In
But new issuance told a far different story. Chrysler priced the two- and three-year end of its $1.4 billion transaction two to three basis points wider of original talk, which was a hefty 13 to 15 basis points off on the short ends of its last deal which came in April. In fact, Chrylser's pricing, usually a benchmark which engenders tightening among other offerings in the sector, pushed both prime and nonprime auto spreads wider. The firm's two-year class priced at 69 bps over Treasurys and the three-year class sold at 70 bps over the curve.
Sources pointed out that Chrysler's pricing was dramatically wider relative to where the comparably prime Ford deal priced in May, despite the fact that execution has been tougher lately due to cloudy market environs.
"People viewed the Chrysler deal as a steal once it ultimately priced," said a trader. "Issuers are bent right now in this environment." Chrysler also was the last of the major issuers to come in for the quarter, he added.
But perceived sloppy execution might be camouflaging Chrysler's opportunism when it comes to making a rate play. The big Detroit automaker pulled a similar tradeoff between wide spreads and cheaper rates late last year, launching a deal when spreads had ballooned. The firm ended up locking in a rate before the Fed raised the ceiling on interest levels.
"I don't think they cared what spreads were," said a trader. "They're being driven by the rate view. I remember viewing that fall deal when Treasurys were rallying like crazy. They were the first ones to pull the trigger. They got their rates locked in before they went up."
HEL Crowds Quarterend Pipeline
Home equity issuers saw similar widening on their last-of-the quarter deals, though they seemed to factor in generous spread levels into their premarketing efforts. Banc One, RFC and Fremont all priced deals in the range of $500 million.
The A-4 and A-6 tranches were five and three basis points wide, respectively, from talk for RFC's high-LTV, Ambac-wrapped offering. The levels on this deal also sold 10 to 15 bps wide from tier one home equity spreads.
New Century was in at press time marketing a $350 million home equity deal with an FSA wrap. Price guidance for the two- and three-year classes were 90 through 95 bps and 95 through 100 bps respectively. - SK