The U.S. ABS primary market priced just $2 billion last week as an interest rate hike, a surprising Treasury announcement, high-profile corporate downgrades and pending employment numbers and conspired to keep things quiet.
On Tuesday the Federal Reserve ratcheted up the target federal-funds rate another "measured" 25 basis points to 3% and on Thursday the Labor Department reported initial jobless claims rose by a seasonally adjusted 11,000 to 333,000 for the week ended April 30, with the non-farm payrolls due out last Friday. Sources said it was not necessarily the numbers but the expectation of those two announcements that may have been enough to make issuers lethargic. Barclays Capital ABS researcher Jeff Salmon said issuers may have been advised to hold off on their deals because of the heightened potential for volatility brought on by the Fed announcement and employment numbers. "You would certainly have a situation of saying let's hold off until things are a bit more stable,'" said Salmon.
The week's issuance was dominated by home equity deals, with a few credit card deals and even a rare manufactured housing deal thrown into the pint-sized mix.
Two credit card deals livened up the still-groggy sector as it awakens from an early-year slumber that saw issuance levels drop as low as one-third those of 2004 at various points. Chase Manhattan Bank, N.A. was in the market with a $300 million, three-year floater. The single-A rated series 2005-B1 deal, upsized from $250 million, priced at 14 basis points over one-month Libor. The other deal in the sector was $500 million seven-year, triple-A rated floater from MBNA America Bank, led by Barclays Capital and Citigroup Global Markets, that priced at eight basis points over one-month Libor.
Though the credit card sector may be on the rebound, Peter DiMartino, ABS strategist with RBS Greenwich Capital, pointed out that outstanding credit card receivables are trending downward. "The downdraft in card receivables prompts a legitimate question: How robust can a resurgence in credit card ABS be?" asked DiMartino last week. At the present rate of pay-downs it may be doubtful to envision new net growth, he added.
The home equity sector also saw two deals last week, one a $439 million deal from Goldman Sachs, the one-year tranche of the floating-rate portion of the deal priced at 17 basis points over one-month Libor, while the five-year tranche priced at 45 basis points over one-month Libor. The 3.80-year fixed-rate tranche of the deal priced at 160 basis points over swaps.
Equity One priced a $236 million fixed- and floating-rate home equity deal that was led jointly by Friedman Billings Ramsey and RBS Greenwich. The three-year, fixed-rate portion of the deal priced at 30 basis points over swaps, while the five-year tranche priced 54 basis points over swaps. Both are on top of industry average spreads. The one-year floating-rate tranche of the deal priced at 10 basis points over one-month Libor, and the double-A rated 5.45-year floating-rate tranche priced at 43 basis points over one-month Libor.
In the little watched manufactured housing sector, Origen Financial priced a $165 million manufactured housing deal, apparently taking advantage of the light week to put its deal in the market when it could grab the maximum amount of attention. The fixed-rate deal was led solely by Citigroup.
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