Securitization issuance volumes in the US appear set to be maintained as market participants grow more confident into the end of the year.
Such a reversal in sentiment stands in stark contrast to what many participants said earlier this year, when both investors and issuers predicted they would be out of the market before the elections on November 5.
Predictions of falling issuance volumes have not come true and some believe there is no end in sight to supply. “Earlier this year there was a lot of talk about new issue supply shutting down this time of year," said Victor Saratella, managing director of global fixed income at Liberty Mutual Investments, speaking on a panel at the ABS East conference in Miami this week. “But conversations with participants here lead me to think otherwise and we will continue to see strong issue supply throughout year-end".
Others, however, were more careful about the election outcome — not just in the near term for market volatility, but over the long-term impact to the market that a change in government might bring.
“It’s been hard to think about 2025 without getting past the election uncertainty,” said Jon Denfeld, portfolio manager and head of US ABS at BlackRock, speaking on the same panel.
Not everyone shared such a view. "We know what we’re getting either way,” said Saratella.
Another area of concern for some is inflation and its affect on interest rate policy.
Pramit Mukherjee, senior director of investments at Legal and General Retirement America said on the same panel that he still thought inflation was “sticky” and was skeptical that the Federal Reserve would lower rates 100bp by year end.
But another MBS investor, talking outside of the panel, was much less concerned. “I don’t know why people think inflation could come back,” he said. “So many places have no pricing power.”
But if there was one area of consensus, it was agreement on how resilient the market for structured products has been this year. “This year has been awesome for structured credit supply,” said Denfeld.
“In some ways it has been easy to make money in 2024,” he added. “Money managers could just hide in the senior tranches and collect our yield, because spreads across the board were attractive in early 2024.”
The attractiveness of spreads in 2024 brought in broad market participation, but participation remained limited to money managers as this year was a “professional’s market”.
“New issue concessions have all but gone away recently, and subscription levels continued to stay robust throughout the year,” Denfeld explained.
Plenty more
Denfeld estimated that there was $9tr of cash that could be enticed to enter fixed income, including securitized products. “Next year could be more of a ‘retail’ market as more people get involved putting their cash into structured products and fixed income,” he said.
Panellists advocated for securitized products as a destination for investment grade corporate bond investors on the grounds of relative value, despite how spreads have tightened this year.
While securitized products are “not cheap” relative to corporates, said Saratella, he conceded that there was “still some room” for them to tighten against corporate paper.
Beyond the election, the predictions were for a strong market in 2025. “Of the meetings I’ve been in, people have been positive — even bullish,” Saratella said,
Priya Desai, managing director at Metlife Investments also felt confident about securitized products, in particular ABS, because of how resilient the economy has been in spite of restrictive monetary policy from the Fed.