Although the European pipeline remains sparsely populated, with just four new issues marketing, the sheer size of the offerings more than makes up for any lack of supply. The four transactions circulating last week totaled GBP12 billion (E17.4 billion and US$22.1 billion, respectively) and met with such strong demand, that even though some deals were increased in size, a spread crunch was still visible.

Both Northern Rock's Granite Trust 2004-1 deal and Mortgage Trust's buy-to-let First Flexible No. 6 were upsized during marketing, and priced at the tight end of initial talk.

Guidance was tightened on Mortgage Trust's subprime issue after demand sparked an upsize to GBP500 million (E724.9 million and US$922 million). The three triple-A pieces, divided into dollar-, euro- and sterling-denominated classes, all with 2.92-year average lives, priced at 28 basis points over the three-month Libor each. According to analysts at Dresdner Kleinwort Wassertstein, U.K. buy-to-let RMBS typically offers a pickup of 10 to 15 basis points over prime deals. It likely appeals to investors looking for yield over the even tighter prime U.K. RMBS levels.

Northern Rock's prime RMBS deal was also upsized to GBP3.5 billion (E5.07 billion and US$6.45 billion), with three triple-A pieces growing to US$1.185 billion each (see international scorecards, p. 45). The class 1A1 and 1A2 dollar-denominated tranches priced at four basis points under one-month Libor and seven basis points over three-month Libor, respectively. The class 2A1 and 2A2 triple-A pieces, offered in both dollars and euros, priced at 16 basis points over Libor. A class 3A sterling-denominated triple-A note also priced at 16 basis points over.

Further down in credit, sources highlighted the levels of the triple-B rated notes included under the deal's capital structure. The euro and dollar-denominated triple-B pieces came in at an unusually tight 107 basis points over Euribor and Libor for 5.15-year 2C and 3C classes, respectively.

"Due to the continued favorable economics for issuers who use the short-dated dollar-denominated tranches, dollar issuance is expected to continue to dominate 2004," said analysts at Merrill Lynch. "This growing outlet for supply should put further downward pressure on the launch spreads for euro and sterling triple-A paper, from the tights of 19 basis points seen [last] November and September."

Abbey National is also out with Holmes Financing 8 led by Barclays Capital, Lehman Brothers and UBS. Much like the Granite structure, a large part of the deal will be offered in dollar-denominated tranches, with approximately US$3.6 billion of the US$5.48 billion equivalent in bonds offered (E4.3 billion and GBP2.96 billion). If the positive reception of past RMBS deals is any indication, Abbey is sure to draw a strong response from investors still looking to buy into the market early this year, said market sources.

The largest U.K. RMBS, however, is due out from HBOs plc's Permanent Financing No. 4, totaling US$9.25 billion (E7.62 billion, GBP5 billion), via Citigroup Global Markets, Morgan Stanley and UBS. Three-quarters of the offering will be dollar-denominated, with just three tranches out of 16 offered in euros and only one sterling-denominated class.

Outside of the U.K., talk of a new E350 million Spanish RMBS began circulating last week for a (GBP241 million and US$444 million) transaction from AyT Hiptecario Mixto FtdA. Demand for Spanish paper continues to drive spreads tighter at the triple-A level. Improving market fundamentals should continue to make this sector attractive in the short term, sources say. The most recent multi-seller RMBS deal from the region came last November. That deal, TDA 18 Mixto, saw its A1 class notes price at 25 basis points over three-month Euribor.

The Italian government is expected to come to market with another round of financing under its SCIP series. An announcement on SCIP 3 should come by the end of this week. The deal is estimated to be around E2 billion (GBP1.37 billion and US$2.54 billion).

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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