Sooner or later credit tiering will return to a structured credit market that for too long has failed to reflect differentiation in the underlying assets, deals' performance or servicer record. That's the theory anyway. Recent events, though, suggest that spreads and market sentiment remain remarkably resilient to all but the worst news. When non-conforming residential mortgage-backed securities market leader Kensington Group unveiled disappointing performance data and the use of the reserve account on RMS 15 & 16 it had an immediate impact.
"Initially, we saw a 10 basis point widening in Kensington AAA spreads as a result of the RMS 15 & 16 news but they have quickly recovered so that now we're almost back to where we started," says Rob Ford, head of ABS trading at Barclays Capital. Generic non-conforming RMBS now trades at Libor plus 18bp.
Although it might seem that much of the money out there is not in the hands of very discerning investors, at least one deal has struggled to be completed. Despite launching at the end of June, HVB's Bluestone Securities 2005-1 has yet to price. And this is not a large UK non-conforming RMBS deal, being worth only a little more than £100 million.