After the heaviest quarter the U.S. ABS market has ever seen, players loosened their belts last week for a collective breather. With more than $175 billion of new issue supply pricing during the first three months - an average of $13.5 billion a week and an unbelievable $700 billion annualized pace - transaction volume last week totaled just $6.7 billion, not surprisingly weighted heavily towards the mortgage sector.
While spreads have softened somewhat in recent weeks, particularly in subordinate home equity bonds, most sectors remain at near their historic tights. This, combined with the all-time low absolute fixed-income yields, even has some accounts on the sidelines altogether, sources said. Other, more pessimistic, sources compared the current environment to a pre-Russian debt crisis of 1998, calling it a "Greenspan-induced credit bubble," and wondering aloud what "trigger event will lead to a re-valuation of credit markets."
Spreads for triple-A rated bonds, however, remain tight, as evidenced by last week's offerings. Floating-rate home equities from top-tier issuers three-years and under routinely price inside of thirty basis points over one-month Libor. Last week, Credit Suisse First Boston's Home Equity Asset Trust shelf priced its 2.7-year triple-A rated A2 class at 29 basis points over Libor. This was, however, outside of guidance in the 26 basis point area over.
Option One Mortgage priced $988 million of series 2004-2 notes, with a three-year average life, priced at 21 basis points over one-month Libor, in line with price guidance. Banc of America Securities and RBS Greenwich Capital led OOMLT 2004-2 jointly.
Subordinate floaters, while wider, remain fairly tight to triple-As, although that could differ depending on which agency's rating you believe. Triple-B plus bonds marketed last week, priced anywhere between 160 basis points over Libor (HEAT), to 200 basis points over (OOMLT).
Wells Fargo tapped the market for its first-ever home equity ABS, a $1.3 billion series 2004-1 deal via Lehman Brothers. WFHET 2004-1 2.87-year 1A class and the 2.88-year 2A1 class priced at 30 basis points and 24 basis points over one-month Libor, respectively. Also seen in the mortgage sector last week, Terwin Mortgage completed a $245 million series 2004-3HE deal via Merrill Lynch. AmeriQuest Mortgage completed two offerings last week, one each from its retail AMSI and its wholesale Argent Securities ARSI shelf. The $600 million ARSI 2004-W5 deal priced via Banc of America Securities and Deutsche Bank Securities, while the $690 million AMSI 2004-FR1 was set to price on Friday via JPMorgan Securities and RBS Greenwich Capital.
AmeriCredit Finance, meanwhile, was the lone name seen in the auto sector, completing its second deal of the year, a $900 million series 2004-BM deal, backed by MBIA, via Deutsche Bank and Lehman Brothers.
Australian mortgage lender Member's Equity Property sold a $1 billion SMHL Global No. 6 deal via joint leads Credit Suisse First Boston and Deutsche Bank. The triple-A class, with a 2.63-year average life, priced at 16 basis points over three-month Libor, at the tight end of guidance.
The aircraft sector saw a rare transaction last week, a $312 million aircraft lease ABS repackaging via Morgan Stanley. Airplanes Repackaged Transferred Securities 2004-1, backed by GE Capital's LIFT cashflows, is the second aircraft lease ABS repackaging completed by Morgan Stanley, following last December's Combination Repackaged ABS II deal, which resecuritized downgraded classes of Airplanes Pass-through Trust, which is also serviced by GE Capital.
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