US buyers welcome robust UK RMBS supply
Granite and Aire Valley sell-downs pique interest; deals will be structured for US buyers
By Ben Edwards
After a glut of UK RMBS issuance pushed spreads out to their widest levels in three and a half years in 2015, US money managers are eyeing UK deals for potential bargains and could help soak up what is expected to be another year of elevated supply.
“UK RMBS cheapened meaningfully this fall, which made it more attractive in terms of relative value to the US,” says Curtis Manning, senior ABS analyst at Henderson Global. US investors have been prompted to start buying again.
By mid-January the average asset-swap margin on mortgage-backed securities issued in sterling had jumped to around 140 basis points, the widest level since the summer of 2012, according to a Markit index. The average spread was 96bp at the start of 2015.
A lack of domestic UK RMBS investors means that any spike in new issuance can cause spreads to gap out, even if the underlying mortgages remain solid, says John Kerschner, head of securitization at Janus Capital, who has been buying UK RMBS again since last March.
Around $12.5 billion of prime UK RMBS was issued last year, almost three times what was issued in 2014, Dealogic data show.