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Japan's Government Housing Loan Corp (GHLC) stepped confidently into the residential mortgage backed securities (RMBS) fold last month, sparking hopes that Japan's securitization market is expanding. Touted as a benchmark deal, it represents the first agency deal not guaranteed by the government. Joint led by CSFB, Goldman Sachs and Sanwa Securities, the corporation floated ¥50 billion (US$406.8 million) worth of mortgage loans. This should be followed by similar transactions each quarter with GHLC planning to issue ¥200 billion in mortgage backed securities each year – small by comparison to the agency's holdings, but a significant development nonetheless.

Australia's largest radio broadcaster, Austereo, has yet to trade at its reduced issue price of A$1.85 (US$0.92), lending weight to the belief that its recent float was not only overpriced, but failed to take into account mounting competition in the radio market. Analysts say the threat of competition from rival DMG Radio was mistakenly overlooked – or well covered up – during the run-up to the float. The deal, which started out as a bookbuild, raised some A$67 million less than expected – a figure that was well short of Austereo's expectations and those of its parent, Village Roadshow. Global lead managers were Merrill Lynch, Credit Suisse First Boston and Macquarie Bank. Co-lead managers were Salomon Smith Barney and CIBC.

Investors Management Group is planning a spending spree of up to $300 million in seasoned 7.50% conventional MBS pass-throughs over the next several weeks because it thinks the refinancing wave is over and mortgage rates will begin to back-up. Kathy Beyer, portfolio manager of the Des Moines, Iowa-based fund, says the timing reflects the fact MBS have under-performed year-to-date, and are poised for a rally should Treasuries continue to pare the gains they've made in the first quarter. This would bring her MBS allocation up to a neutral weighting on her firm's $2 billion bond portfolio, from 20% to 35%. Also, the refinancing wave that hit MBS so aggressively in the first quarter--the Freddie Mac survey of 30-year mortgage rates is now at 6.89%--makes seasoned bonds, or paper that has survived several pre-pay waves, more valuable.

Up-front fees on both pro rata tranches and institutional tranches reached their annual highs as fees on pro rata pieces jumped up to 5.2 basis points and fees on institutional pieces to 3.1 for March 2001. According to Portfolio Management Data, fees on pro rata tranches from the three months ending March 2000 were 2.9 basis points and fees on institutional tranches were 2.1 basis points for every one million dollars committed in March 2000.

Allied Investment Advisors, a Baltimore-based investment firm, will rotate from Treasuries into ABS when it thinks the Federal Reserve is done lowering interest rates, according to portfolio manager Wilmer Smith. Smith, who oversees $300 million of the firm's $7 billion in fixed-income assets, argues this will probably not be until the May 20 FOMC meeting, and he is anticipating an inter-meeting rate reduction. But, when the Fed is finished, he is ready to rotate 5%, or $15 million, of his short Treasury position into liquid AAA ABS credits in the HEL sector.

Grantham, Mayo, Van Otterloo & Co. has been buying the commercial loans of the Republic of Algeria, as well as Russian Federation 30-year Brady bonds, on the view that they provide both safety and high total return.

Buysiders gagging on telecom and hungry for industrial and healthcare deals are now being pinched by a bond market that is becoming more welcoming and sapping bank loan tranches. The latest example is DaVita, Inc., an acute healthcare provider, which decreased its $500 million bank deal to $425 million last week while maintaining its $200 million bond deal. "The high-yield market is hot for healthcare," said Richard Whitney, cfo of DaVita, explaining why the company decided to go to the bond market as it refinanced its credit facility. "We still could have gotten the deal done [if bonds weren't an option], but a larger percentage would have gone into the "B," he said.

A number of buysiders were taken aback by last week's 10-15 basis point tightening in corporate spreads during another round of equity market turmoil, and some are forecasting there may be further tightening. "It's rather unusual to watch a corporate rally when stock prices go down," says Greg Habeeb, portfolio manager at Calvert Asset Management Group, who runs $2 billion assets for the Bethesda, Md.-based firm. Players put the tightening down partially to technicals, as some Street firms were caught short in the final week of the quarter, and positive fund flows in to the mart.

Countrywide Securities, the debt capital markets arm of mortgage lending giant Countrywide Credit Industries, has tapped several Street pros to fill newly-created slots in its MBS sales and structuring units at its Los Angeles headquarters. On the sales side is Jim Tennille, a former pass-through trader in Charlotte for several years with First Union Capital Markets, who started last Monday. He reports to national sales head Mack Humphries; at First Union, he reported to MBS trading chief Tim Coyne. Coyne says that he has assumed Tennille's duties, and wouldn't comment on his departure. Tennille says although a switch from trading to sales is a challenge, the combination of working at a shop with "an intense concentration in one product area that is expanding rapidly" was too good to pass up.

Issuance picked up on the week as corporate treasurers took advantage of low absolute yields to push debt into the market. Despite the selloff in equities, the tone in corporates remained firm as money continued to flow into the sector. Average deal size increased and the weighted average credit quality of issuance improved as well. Unlike high yield, where there has been a significant reversal of risk appetite in March, BBB corporates have kept pace with AA bonds. That said, bondholders are increasingly demanding that new issues include protection from deterioration in credit quality. American Home Products included a step-up coupon to compensate bondholders for downgrade risk, as did France Telecom in its jumbo deal last month.

Bankers said last week that Deutsche Bank may only raise between $50 million and $100 million for FairPoint Communications compared to the original $150 million add-on deal the bank originally had planned. Sources said the bank has not been able to raise enough interest in the deal or commitments to come up with an additional $75 million for tranches "B" and "C" of the company's existing credit. Tim Henry, v.p. of finance and treasurer, said, "The jury's still out," when asked about the fate of Deutsche Bank's best efforts deal for the company. "We have had a fair amount of interest and there is still interest in the credit," said Henry, in response to rumors in the market two weeks ago that the deal may be pulled entirely, as was Credit Suisse First Boston's deal for Nextel Partners.