Investors' appetite grows for securitised issues
Over the first quarter of this year, issuance in the international asset- and mortgage-backed market exceeded $23bn (e26.2bn) for the fourth successive quarter. According to research from Steven Mixter of ING Barings, the issuance represented a slight drop of 2.5% from the fourth quarter of 2000, but a remarkable 36% rise over the first quarter of 2000.
As Mixter points out, “This demonstrates a remarkable show of consistency for the market, especially given what has been going on outside the asset backed securities (ABS) markets.”
It seems obvious that issuers will continue to tap this increasingly successful market, and there is increasing pressure on investors to include these types of securities in their portfolios. In fact, despite the burgeoning supply, spreads in the ABS market continued to tighten throughout the quarter as investor appetite for these securities has indeed grown. Mixter suggests that as investors have become more wary of taking on more corporate event risk, ABS issues have appeared increasingly attractive. According to the team at Merrill Lynch, they foresee no weakening of demand for securitised products at the triple-A level in the future, either.
Like any new product area, however there has to be a learning curve up which investors, and originators must climb. Some European investors are already active in this segment of the market, such as Swiss group Clariden, where fund manager Martin Hueppi says, “We are involved in asset backed securities for a variety of reasons. We invest in CBOs and CDOs as buy and hold instruments, for example, where the premium you get is mainly for liquidity. And we are involved with other asset-backeds such as auto-loans and credit card securities which, although relatively unfamiliar to European investors are more liquid.” For many other investors, though, asset-backed investing is yet another string that will probably have to be added to their bows, in the fairly near term.
And along with the growing market, there is thankfully a growing awareness of the need for, accepted market practices, open access to information, and pan European legislation. The European Securitisation Forum has recently approved supplemental guidelines on post-issuance transaction reporting. Fully supporting these guidelines is absreports.com.
Absreports.com was launched in January of this year to be the first independent web site specialising in the provision of transaction data for the European securitisation industry. According to managing director Nicola Davies, momentum is building fast. She goes on, “We started with the idea some two and a half years ago and even then the response from investors and originators was very positive, and the ball has continued to roll since then. Initially the investor base was limited to a few sophisticated internationals, but there has been a real sea change and the base is fast becoming more pan-European.”
Davies makes the comment that, although increasing the flow if information will produce a variety of benefits such as increased liquidity, a broader investor base and tighter pricing, there is still some reluctance on the part of some originators. She explains, “To be fair on them the increased reporting will add to their work loads, and possibly involve upgrading their own reporting systems. However, with some of the bigger investors, such as the UK’s Halifax, demanding post-issuance reporting, we think we are witnessing something of an unstoppable tide.”