Despite the weakened credit environment brought about in part by the deterioration of the US sub-prime market, primary supply in the European ABS market has continued unabated. However, the sub-prime contagion into other sectors, combined with nervousness brought about by recent LBO headlines, is responsible for a drop in liquidity, and subsequently in demand, for structured product.
Consequently, the process of syndication is changing. "In a seller’s market, it is much easier to build a book," says Chris Pink, head of structured products distribution at Wachovia. "When you have a difficult market, the process becomes more delicate, the burden greater."
Prime European triple-A RMBS are now printing wider by 3 to 5 basis points – which for a five-year average life means borrowing costs have risen by between 5bp to 7bp. Fortunately for them, most large issuers are not big takers of liquidity during the summer...
