Securitization

The securitization market completed about $9.8 billion in transactions during the last two weeks, according to data from UBS. Although that amount is a fraction of what is normally issued in any given two-week period, traders and issuers appear to be getting used to it.

New issuance in the U.S. CDO market remains dormant amid continued ratings instability. But the center of gravity seems to be moving east for CDOs as an increasing number of transactions are popping up overseas, particularly synthetic structures.

The Brooklyn U.S. attorney has started an investigation into the collapse of the two Bear Stearns hedge funds - its High Grade Structured Credit Strategies Master Fund and its High Grade Structured Credit Strategies Enhanced Leverage Master Fund - that had subprime exposure, sources familiar with the matter said.

About a month ago, amid the turmoil that caused about $80 billion in securities to evaporate from the structured investment vehicle (SIV) market, Moody's Investor's Service suggested that bank sponsorship might make the difference between normal operations and the wind down of much of that market.

Production volume in the securitization market was low last week, as market participants came off of the third quarter's end and a holiday weekend. Still, distressed-debt funds and choosy investors kicked up enough dust to let the market know they would be choosy about the kinds of debt they buy, at least for the time being.

Independent data and trade processing firm Markit launched the first tranched LCDX last Wednesday, with market players forecasting that a new crop of investors would take an interest in the product and create liquid trading conditions.

The Royal Bank of Canada is preparing to issue a 15 billion ($21 billion) covered bond program to finance a pool of mortgages. The Global Covered Bond Programme represents the first issuance of covered bonds backed by Canadian assets.

When the asset-backed - and especially the mortgage-backed - securities markets came screeching to a halt over the summer, market participants were afraid to post bids and offers on the often highly illiquid securities because no one knew their values and there was no forum for adequate price discovery.

Liability spreads in the ABS CDO market may continue to push out as issuance remains at a standstill. But with the pickup in new deals in the CLO sector, similar widening appears to have ended with the third quarter.

Securitization pioneers Lewis Ranieri and Marcia Myerberg are back in the mortgage finance world with a new venture, an Internet business that links consumers directly with mortgage lenders, thrifts and commercial banks, bypassing mortgage brokers. Called Root Markets, the new business will be linked to Internet portals and newspaper sites.

The third quarter turned out to be a very slow and painful period for the asset securitization market. Issuance was a mere $114.4 billion during the period, which represented a 60% plunge from the same quarter last year, according to information from global research firm Dealogic.

Citigroup Global Markets managed to claim the top position among U.S. ABS CDO managers, according to Thomson Financial, despite a recent announcement that the bank is facing losses on $1.3 billion in pretax subprime MBS collateral, CDO positions and leveraged loans warehoused for future CDOs.

Outstanding paper in the asset-backed commercial paper market might have pulled back since August, but new vehicles are still cropping up. Deutsche Bank, for one, launched a so-called feeder conduit called Montage Funding recently.

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Largely on the strength of consumer ABS assets, the securitization market slowly cranked out several more transactions last week. Also, while some traders reported better demand across the credit spectrum for ABS paper, a trend developing in both the secondary and primary markets, most expected deal volume to slow down considerably as the third quarter comes to a close.

For several months now, the capital markets have been bracing for layoffs stemming from the downturn in the subprime MBS, CDO and broader ABS markets. Last week, a wave of at least a couple hundred layoffs moved through the MBS businesses at Credit Suisse and HSBC Securities, leaving much of the industry nervously awaiting more.

The current joke on the street goes something like this: Do you know what a cov-lite rating is? Well, just the kind of rating the rating agencies were giving - no verification, no due diligence.

Industry observers have been bracing for October, when an estimated $50 billion worth of adjustable rate mortgages are going to reset to higher rates.

The September remittance reports revealed that conditions in the mortgage market are worsening, although the rate of credit performance dislocation is mostly slowing, according to a UBS report.

For all the dread the collapse of the subprime market has brought to the economy, those looking for a bit of good news have projected a stronger mortgage market on the assumption that lenders have begun tightening their underwriting standards.