Roughly in step with other markets, structured finance pricing and issuance in June was governed by questions of how quickly the Federal Reserve would rein in its asset-buying spree.
"Faster than we thought" was the queasy market-wide answer to Fed Chairman
They had already begun to rise in earnest during May. Through early June, spreads across the asset-class board edged out, with some products faring better than others.
"ABS held up best, especially on-the-run [segments]," said
CMBS, in contrast, saw more pronounced widening in the weeks to mid-June, in part due to the active primary market.
Trifon said that CMBS spreads had moved out through the capital stack while rates on the underlying collateral rose. Allowing for the variation inherent in the commercial real estate sector, coupons on loans were probably about 50 basis points higher in mid-June than they were a month earlier. For some properties, the figure ran as high as 100 basis points.
Repeat Issuers, Off the Run Equally Affected
Market sources said that the 2013-3 subprime auto deal issued by
But the company chose to upsize the deal to
"The market had come very far," said a market source at mid-month. "It's retracing a bit, and it'll probably trade in a range."
Bernanke confirmed anxieties about the looming end of quantitative easing. This exercise in rate suppression, he said, could end by mid-2014 provided that growth continues to gather steam. Markets tanked and the yield on the 10-year Treasury spiked to 2.54%, its highest since
Structured finance pros were rattled along with everyone else. The sensitive CMBS sector saw new issue duration-hedged triple BBBs come out some more, with widening having reached 125 basis points in the two months up to
Public new issue CMBS widened out by 7-10 basis points over the week to
Issuance Likely to Slow
How hard this would ultimately hit issuance was hard to say. Deals like Shellpoint Partner's long-anticipated private-label RMBS was marketing at press time, and Standard & Poor's was quick to point out, post-Bernanke, that the week of
The agency said that U.S. ABS issuance was about
"The biggest effect of wider spreads, higher yields, and increased volatility will be to slow the pace of issuance in H2, in our estimate, especially for U.S. CMBS," S&P said.
Indeed, the agency welcomed a slowdown in CMBS issuance, calling such a prospect a "mild positive" in a
BofA Merrill analysts also saw silver linings for some structured markets: "Higher yields stand to deepen the investor base for MBS, most notably for banks and insurance companies."
The higher volatility induced by Bernanke "will keep many investors on the sidelines until the proverbial dust settles."
For both issuers and investors alike, the operative word this summer might be "windows": Watch out for them and be ready to jump (either into the market or out, depending on where you stand).
|Copyright:||(c) 2008 Source Media Inc. All Rights Reserved.|
|Source:||Source Media, Inc.|