ABS Trading Volumes Soar
Volumes in the structured finance secondary market are surging, with billions of dollars in bonds having changed hands among Wall Street dealers in recent weeks.
Volumes in the structured finance secondary market are surging, with billions of dollars in bonds having changed hands among Wall Street dealers in recent weeks. Surprisingly, spreads have not budged and this has some asset-backed players fearing the market will not be as lucky if and when the next wave of bid lists hit. Light dealer inventories mean the selling has been absorbed, but investors said dealer appetite for risk is not limitless and continued selling will crimp spreads.
The trading has been across the capital structure but centered around single-A and triple-B securities in mostly sub-prime mortgage assets. One head of trading at a large mortgage house said his desk normally handles around $20 million of this kind of paper a day and is now swapping close to $300 million daily. "It's been bid-list-o-rama," said one investor.
Market professionals declined to say which parties are behind the selling.
Of course, historically tight spreads are causing some investors to take profits. And some of the selling, for example, was said to be related to a structured credit vehicle that unwound its warehouse line. "You would think that at some point, you are going to have some widening," said one investor.
The activity marks a major shift for the ABS market, which has turned into one dominated by primary flows in recent years as mortgage-related sales have jumped. But with higher rates and fewer loans being originated, the pace of new issue supply is expected to slow and the secondary market is likely to become a more active arena, market professionals predict.