The asset-backed market in Europe came into its own in 2004, totaling close to 210 billion for the year, up 30% over 2003 and on a par with issuance in Europe's well-established covered bond market. While residential mortgage-backeds, in particular from the U.K., still represent close to half of total supply, the greatest increase was seen in commercial mortgage-backed issuance.
Meanwhile, credit spreads continued to tighten throughout the year to all-time lows across all asset classes and across the capital structure. Also, tiering all but disappeared (BW, 6/28). This was driven largely by an influx of new investors searching for yield after the corporate rally of 2003, including hedge funds and institutional investors as well as new structured investment vehicles and conduits. Veteran investors accused the newbies of indiscriminately jumping on the bandwagon and not doing sufficient credit work and relying too heavily on rating agency assignations (BW, 12/13).
Changes to various regulatory frameworks also held center stage in 2004, with a strong focus on the new capital adequacy regime to be implemented under Basel II (BW, 6/14), as well as country-specific initiatives such as the True Sale Initiative in Germany and efforts to implement changes to Law 130 in Italy.