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European ABS – Two Weeks In Review By Markit (Jan. 1-14) January 13, 2010

European cash asset-backed securities levels remained stable through the end of 2009. Many investors were waiting to see how 2010 would start before taking action. So it is not surprising that the two first weeks of 2010 have been very active. Furthermore, almost all securities, no matter the asset class, the rating, the country and weighted average life, have tightened.
Granite AAAs, for example, are now priced at 93.5 cents, which corresponds to a spread of 250 basis points. That’s almost 4 cents higher than for mid-December 2009.
U.K. prime securities, such as Arkle or Holmes Master Issuer AAAs, are now trading at 90 basis points, which is below the symbolic 100 basis points threshold. Permanent Master Issuer AAAs are now at 120 basis points.
Due to the increased demand for U.K. prime, Dutch RMBS AAAs are pricing at the same level as Arkle and Holmes, or just slightly wider at 95 basis points.
Auto ABS such as VCL 11 A have reached 80 basis points. Such levels have not been seen that tight since the end of December 2007!
Additionally, commercial mortgage-backed securities, U.K. nonconforming RMBS and Spanish RMBS are all recovering. Finally, BNP Paribas’ recent tender made during December on various UCI bonds priced from 80 cents for the ones with the longest WAL to 95 cents for the ones with shortest WAL.

European ABS Total Return
We still see price improvement overcoming performance deterioration in our total return curves and we do not expect to see the opposite until these bonds reached par. For example, the cash price jump for Granite securities is definitely reflected in its total return.

European CDS Of ABS
The credit default swaps of ABS market in Europe was the first to reflect the New Year’s optimistic feeling. Since before year-end, some dealers were already marking U.K. prime AAAs, such as Arkle or Holmes, at 50 basis points, which is 30 basis points tighter than the current cash spread.
Granite AAA’s priced up front moved back to 2.5 cents which represent a spread of 170 basis points, 80 basis points tighter than the cash spread.

As for the ...

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