The debt ceiling compromise will bring some temporary relief to the securitization market, although the benefits will likely be short-lived.
“The market has never been concerned with the debt debate," said Lance Roberts, CEO of Streettalk Advisors."Stocks and bonds are both trading near highs. The financial markets always knew that there would be no default on the debt or if there was, it would be only temporary in nature. The real issue for the market is ultimately the economy because weak economic growth will translate to weaker profit margins and lower stock prices.”
In the securitization market, fundamental performance has remained stable. However, the recent situation highlighted that the macro economic situation is more fragile than the market had expected.
According to Unicredit analysts, an example can be seen in the U.S. economic growth figures, which remains subdued as last Friday's GDP figures underscored.
"Second quarter U.S .GDP came in at 1.3% (annualized), which was below the consensus expectations of 1.8%," analysts said. "Moreover, first quarter growth was revised down from 1.9% to 0.4%, making 1H11 the worst six months since the recovery began in June 2009 in the U.S."
In Europe, with Greece negotiations under the belt, more countries have surfaced with problems of their own. The latest example comes from Spain, which Moody's Investors Service last week placed on review for downgrade. This has triggered a similar action against seven Spanish ABS deals.
Moody’s placed Spain (currently rated 'Aa2') on review for a possible downgrade, citing funding pressures and challenges to fiscal consolidation efforts.
This move follows a similar action on Italy in June. This was when the Italian sovereign was placed on negative watch as a result of economic growth challenges, implementation risks relating to fiscal consolidation plans and risks posed by changing funding conditions.
Although the U.S. might have averted default and Greece was brought back from the precipice, all the macroeconomic troubles have left investors sidelined on a thin market, analysts said.
"With worries about the U.S. adding to the already existing concerns about European peripherals, broader market volatility is unlikely to disappear in the short term," Barclays Capital analysts said.