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Markit Structured Finance
Markit Structured Finance - Weekly Reviews
December
EU ABS Review
20 December 2011
Needless to say, 2011 has been a topsy-turvy year in the financial markets and the European ABS market was no exception. Several promising rallies were stifled throughout the year by continuing sovereign solvency concerns. However, every cloud has a silver lining and these concerns have also served to highlight the relative stability and credit quality of much of the asset class...
 
November
EU ABS Review
25 November 2011
With most credit investors expecting the worst in Europe and with sovereign spreads going through the roof it seems that ABS securities, senior in particular, continue to be a safe haven of relative stability. Senior UK Prime RMBS and Dutch RMBS as well as Autos have suffered only a few basis points widening since the flash rally at the end of October.
 
October
EU ABS Review
27 October 2011
After months of wrangling, European leaders finally agreed on an action plan to rescue the Eurozone on October 27. The plan is vague on details but the markets reacted positively to the proposals which include bank recapitalisation plans, a lower than expected Greek debt haircut of 50%, renewed commitments from Italy and Spain to do more to reduce debt and introduce further structural changes, and the leveraging of the EFSF to EUR 1 trillion. The extent of the rally in the equities and credit markets is a testament perhaps to how low market expectations of these summits have fallen recently.
 
September
EU ABS Review
30 September 2011
It has been a torrid month for financial markets and European ABS did not escape unscathed. The turmoil over the Greek dilemma and the dithering response from the other nations making up the currency union has led to large equity market gyrations as well as money market contortions (with the 3 month Euribor /OIS spread spiking to levels not seen since 2008). As a result, liquidity drained from the European ABS markets with prices driven down for the peripheral ABS. Prime assets from the core, however, showed significant resilience, with limited widening. While liquidity was affected, the uncertainty did not provoke significant sell-offs.
 
August
EU ABS Review
26 August 2011
Sovereign spreads and the European ABS market mounted a modest recovery at the end of July as Europe’s leaders agreed on bailing out Greece once again. It turned out to be only a short respite. By the end of the first week of August S&P had downgraded the rating of the United States of America to AA+. Alone this downgrade would not have impacted the European ABS market. But combined with European countries announcing poor GDP figures and higher than target inflation, the ABS markets followed the global stock markets and the Markit iTraxx down a very steep slope.
 
July
EU ABS Review
22 July 2011
This has been a torrid month for the credit markets and the European ABS market was no different. Portugal and Ireland downgrades by Moody’s added fuel to the sovereign debt crisis and the situation in Greece teetered on a knife edge for most of the month. All this led to risk aversion and liquidity drying up in all but the safest of havens. Even senior Dutch and UK prime paper started to feel the pressure most recently (with the dealer inventory overhang also reportedly playing a part). Unsurprisingly securities from the periphery (especially Portugal) and the higher beta asset classes (such as UK non-conforming RMBS and CMBS) have borne the brunt of the negative repricing.
 
June
EU ABS Review
24 June 2011
The positive tone has softened in the European ABS market since the end of May with the turmoil surrounding the peripheral sovereigns, especially Greece, finally taking its toll. Prices have been on a downward trajectory, reversing some of the heady gains seen during the rally in April and early May. Investors’ risk appetites appear to have been tempered and this was reflected in the downward pressure on pricing in the peripheral countries. The core, in particular UK Prime and Dutch RMBS, remain largely unaffected.
 
May
EU ABS Review
20 May 2011
Resilient demand continues to be the order of the day in the European ABS market. The Greek turmoil, compounded by the recent quandary that the IMF now finds itself in, has largely gone unnoticed. The rally continues unabated with especially strong demand seen in the Prime UK and Dutch RMBS.
 
April
EU ABS Review
26 April 2011
By the end of March it seemed that the sovereign debt crisis had finally negatively impacted the European ABS market as spreads widened. However, this trend did not last long, for once not driven tighter by the secondary market but rather by the primary market. During the last three weeks more than a dozen important deals, covering all sectors and countries, have been publicly placed. The market had not seen so many deals priced in such short period of time since the first half of 2007. Northern Rock was also back in business with the issuance of Gosforth Funding 2011-1.
 
March
EU ABS Review
17 March 2011
The European ABS market, on the other hand, motors on unperturbed by the natural disasters and the political turmoil in the Middle East. Demand continued to outstrip supply in short dated paper for most of the past month. The CLO, CMBS and NCRMBS sectors saw some heady gains before a general softening took place earlier this week.
 
February
EU ABS Review
18 February 2011
The ABS market has been buoyant for much of the past month. There has been significant investor interest in both the secondary and primary markets. New issuance has come back strongly since the dust has settled post S&P criteria revisions. Whilst issuance from the periphery continues to be retained, those sectors of the primary market that were tapped last year are once again very much open for business.
 
January
EU ABS Review
21 January 2011
The ABS market has had a positive start to the New Year with price improvements seen across most sectors. The UK non-conforming space is where most of the buying has been taking place during the first few weeks of January with every BWIC so far, by all accounts, well received. Whilst demand remains strong, there are clouds on the horizon in the shape of higher than expected inflation figures and the resulting increase in pressure on the Bank of England to respond with a rate rise. This is likely to prolong the house price softening seen since the second half of 2010 and will likely put pressure on the performance of the underlying in non-conforming RMBS sector, potentially halting the rally.