$1bn asset-backed deal sees record pricing By Jennifer Hughes in New York Published: March 2 2005 23:34 / Last updated: March 2 2005 23:34
A $1bn asset-backed bond deal has been awarded the best-ever pricing, in the latest sign of investor appetite for higher yielding assets. Investment bankers forecast pricing could become even tighter as demand showed no sign of letting up.
Prices on a wide range of bonds have risen as yield spreads, or the premium offered over government bond rates, have fallen to record low levels. That has been particularly true of riskier assets as money managers have sought to put their cash to work.
Asset-backed securities (ABS) - bonds backed by a pool of loans - are typically offered in tranches, from top-rated AAA to paper further down the credit ladder. Investment bankers on Wednesday talked of "food fights" between would-be investors for riskier, but higher yielding, tranches of recent deals.
The latest eye-catching deal came on Tuesday when the mortgage arm of Centex, a US housebuilder, sold $1bn in fixed and floating-rate paper.
The one-year slice of the deal yielded a record low of only 7 basis points over one-month Libor (London Interbank Offered Rate), inside expectations of 8-9bp and less than the 10-11bp seen in deals last week. The weakest paper priced at 30bp, less than recent deals, and the three-year tranche priced at a yield of 17bp; the lowest since June 1998.
"That was a different time with different deal structures," said Peter diMartino, ABS strategist at RBS Greenwich Capital. "We've never seen this in the modern-day market."
Observers forecast that spreads could become tighter still. Jack McCleary, head of the ABS syndicate desk at UBS in New York, said: "The idea of spreads widening just because they're tight now isn't on the cards; it's all to do with the amount of money looking to invest."
David Mandel, head of securitisation at BNP Paribas in New York, said demand was strongest for the riskier paper. "There are more and more investors willing to buy this paper and there's only a certain supply."
New US asset-backed deals last year reached a record $896.6bn, overtaking traditional corporate bonds for the first time.
Issuance so far this year is in advance of 2004 but on Wednesday ABS deal managers said they had noticed some lightening in the deal pipeline very recently that could help tighten pricing of future issues further.
Some market insiders said they had seen deals with weaker collateral or weaker structures being priced in line with better quality deals simply because there was such demand from investment managers.
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