European securitization analysts are not overly concerned about the huge amount of asset-backed paper scheduled to hit the market this quarter. Analysts expect between E40-55 billion in new deals to price this quarter, but believe the market will be able to absorb it. The European ABS market saw a substantial amount of issuance last year and spreads did not widen, notes Robert Paterson, head of securitization research at Morgan Stanley in London. Last year, E56.4 billion in ABS paper was priced in the fourth quarter. Paterson says investors still consider asset-backeds to be a safe haven from corporate bond volatility. Approximately E83 billion in European ABS paper has been issued year-to-date. Analysts expect the total to reach between E125-135 billion by Dec. 31.
Phil Adams, securitization analyst at Barclays Capital in London, says his firm has been recommending that investors who generally buy corporates go for residential mortgage-backed paper instead. He does not believe spreads will suffer from the abundance of issuance. However, Paterson's one caveat is that if there are signs of an economic recovery next year, some investors may return to corporate bonds, potentially causing ABS spreads to soften.