ABS investors are arguing that spread tiering in European asset-backed deals is one of the most significant trends in the market so far this year. Richard Paddle, senior investment manager at HBOS Treasury Services, notes that the development is a sign of the European market's maturity. Investors say they are observing spread tiering within asset classes such as consumer assets and residential mortgage-backed securities. They are also seeing a spread difference between deals wrapped by monolines and unwrapped deals and attribute that tiering to concerns over the credit quality of certain monoline insurers.
Emmanuelle Nasse-Bridier, head of ABS at AXA Investment Management, says one asset class that is not seeing enough spread tiering is collateralized debt obligations. She notes that, based on spreads alone, it is still hard to differentiate between the good deals and the bad. Bas Kragten, senior investment manager at ING Investment Management, says he also expects to see more tiering in triple-A rated paper once its liquidity premium disappears.
Many expect additional spread tiering. Rafael Martinez, senior porfolio manager at Fortis Bank, predicts there will be further movement in the European RMBS market as it continues to return. For example, he believes there will be spread differences between deals originated in Southern and Northern Italy. He also thinks a difference between small and large Spanish RMBS deals will become more apparent.