The European mortgage funding market has gotten off to a mixed start to the year. Commercial mortgage-backed new issuance has blown away last year's first quarter volumes as well as analysts' forecasts, but residential mortgage-backed volumes are lower than last year. Overall asset-backed primary market volumes for the first quarter came at €53.8 billion, versus the year-ago period's €66.5 billion.
CMBS issuance hit €7.2 billion for the first quarter, up almost 100% year-on-year, causing researchers such as Morgan Stanley's Howard Esaki to raise his full-year CMBS forecasts by €2 billion to €27 billion. Esaki also expects CMBS will contribute 12% to overall European ABS new issuance. "The first quarter numbers were even stronger than our projections," said Ganesh Rajendra, head of European securitization research at Deutsche Bank in London. The growth is being driven in part by new conduits such as the one from Barclays Capital (BW, 2/21).
In RMBS, meanwhile, only €30 billion has been brought to market year-to-date, versus €44 billion last year. This slowdown was driven by a decline in the pace of master trust sales from the U.K. and some analysts say last year's figure was skewed by one large offering. They insist overall RMBS issuance for the year should still hit 2004's total of €150 billion, because any slack in U.K. prime RMBS is likely to be picked up by U.K. non-conforming issuance along with robust volumes out of The Netherlands and Spain.
In addition, there could be an increase in issuance out of Italy, said Sarah Barton, RMBS research analyst at Morgan Stanley in London. "Many Italian banks would like to issue covered bonds, but as covered bond legislation isn't ready yet in Italy, we understand they will need to use RMBS this year to meet funding requirements," she observed.
