Except for deals structured for repo with the European Central Bank, the European securitization market has remained largely shut for well over 18 months. But that might be about to change as the recovery of credit markets over the past six months tightens secondary market spreads.
"In the past few months we’ve seen spreads racing in from 250 basis points over to 150 over for secondary RMBS. In addition, a lack of secondary market supply should assist in improving primary issuance viability," says Scott Dickens, global head of ABS and structured bonds at HSBC.
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of the investor base is no longer active in securitization |
Bankers are slightly more optimistic mainly because the huge pricing gap between investors and issuers is beginning to close. While the spreads on structured finance assets were highly elevated there was no prospect that issuers would come off the ECB repo facility. The secondary market was also dislocated from all the unwinding of structured investment vehicles and bank conduits. This secondary overhang was probably the biggest concern for the European market, despite there not being the same degree of distressed assets from sub-prime as in the US.