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European ABS – Two Weeks In Review By Markit (Jan. 15-29) January 28, 2010

The European cash asset-backed securities levels for the past fortnight initially rallied albeit at a slower pace than the first half of January. However, the past week has seen AAA U.K. prime residential mortgage-backed securities pricing decrease slightly; with AAA Granites marked at 91 (previously at 93), AAA Paragon at 88 (previously at 89), and AAA Aire Valley’s marked at 81 (previously at 83). With the new issuance from Permanent Master Issuer (Series 2010-1), we would expect to see a rally within the U.K. RMBS sector in the approaching weeks. In contrast, the nonconforming sector has remained relatively stable during this time period.
The CMBS market has rallied significantly over the past fortnight with AAAs leading the way; European commercial mortgage-backed securities spreads tightened in excess of 100 basis points. In fact, the U.K. property fund sector had its strongest quarter in nearly two decades during the final quarter of 2009 with a 10.4% reported gain. With mean gross loan-to-value ratios falling by almost 5% during this quarter, these results have sparked further optimism in the beleaguered European CMBS market. It is all the more interesting to note this trend in the CMBS market as S&P decided to downgrade 26 European CMBS tranches on Jan. 18.

Top Five
Our top five improvers during the past fortnight are highlighted by three CMBS bonds, one Italian RMBS and one Italian equipment lease securitization.

European ABS Total Return
The past fortnight has continued to see price improvement in most sectors in contrast to the deterioration in performance noted within our total return ...

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