--Daniel O'Leary
European investors in securitizations should move toward a U.S. trading style environment and rely less on traditional buy-and-hold techniques to further liquidity in the market, participants on a trading panel at Global ABS in London said Tuesday. Craig Tipping, London-based managing director co-head mortgage and asset-backed securities group at Jefferies International, said the investor-base mindset and trading mandates need to change. “In the U.S., we see accounts that are able to switch more often and actively manage their portfolios and be more defensive,” Tipping said. “And not just buying and holding and hoping for the best, which is obviously constrained with the ability to sell or buy.”
Tipping said accurate valuation of trades for buy-and-hold investors is also keeping liquidity out of the market. Until better valuations on bonds are available, buy-and-hold real money investors will continue to stay on the market's sidelines, Tipping noted.
Since the summer rally kicked off in 2009, analysts and traders have pointed to the small number of trades being used to value the market. While spreads have tightened significantly in the last 12 months, the actual volume of trades has been much smaller than pre-crash levels leaving many experts wondering about the real price of trades.
Nick Waring, director at Deutsche Bank, said sell side pressure was also needed to inject further liquidity. “There has not been very much sell-side pressure, even though the market has been going down,” he said. “The market is never going to get rid of the standstill at the moment, because no one wants to sell at the same time people are on hold from the buy perspective.” Waring said the market standstill will continue until the sell side came back to the market.