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What goes around comes around

Safe havens are in short supply these days. But even in this market they can be found in some unlikely places.

Gavan Nolan, director of credit research at Markit in London says:

“With most credit investors expecting the worst in Europe and with sovereign spreads going through the roof it seems that ABS securities, senior in particular, continue to be a safe haven of relative stability,”  “Senior UK Prime RMBS and Dutch RMBS as well as autos have suffered only a few basis points widening since the flash rally at the end of October.”

How things have changed.

This is the same ABS asset class at whose door all the ills of the world were laid in 2007 and 2008 (well, OK that was sub-prime RMBS but the entire asset class was brought down with it). And in 2007 sovereign bonds were a sea of tranquility as the credit markets burned.

According to Nolan: 

“Most asset swap spreads of European countries, financial institutions, covered bonds and auto manufacturers are now traded wider than senior short-dated ABS.”

That situation would have been utterly inconceivable just three years ago. Will it still be the case in 2014?

European A RMBS
Three to five year WAL 


Source: Markit European ABS Pricing Service 

European AA RMBS
Three to five year WAL  


Source: Markit European ABS Pricing Service  

- Euromoney Skew Blog

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