Securitization

In the past two years the diversity of supply in the ABS market has been restricted by the availability of cheaper funding alternatives, both in the Eurozone through the TLTRO and in the UK, where the BoE Term Funding Scheme has suppressed issuance from the traditional banks and building societies.

It’s been an interesting week for European CLOs; one of our favourite picks in fixed income. 

The last ten year period has seen supply from various parts of the ABS market ebb and flow.

For many years ABS has primarily been used as a funding tool for banks and other lenders.

It seems a long time since the European ABS market saw any meaningful volatility.

Nearly 4,000 international ABS market participants attended the Association for Financial Markets in Europe’s Global ABS Conference last week, the biggest attendance since the financial crisis.

European ABS market performance and volatility have been remarkably stable since 2016, largely weathering broader credit weaknesses so far this year.

Last year we wrote about the forthcoming "STS" (Simple, Transparent and Standardised) regulation for securitisation, designed in part to harmonise eligibility and capital charges for ABS across the wider regulatory landscape.

Five years ago, the European CLO market restarted when Cairn issued the first post-crisis CLO in Europe – the start of the 2.0 market – and after a slow first year we have seen plenty more CLOs coming to market from a large mix of legacy and new managers.

All good things must come to an end, and from today UK bank treasurers face life without the Term Funding Scheme (TFS).

As we provide lots of commentary on the maturing economic cycles and monetary policy across the globe, we thought it was worth highlighting some points from Fitch’s recently published Global Housing Update and its useful insights into how the global housing markets are faring.

As the credit cycle develops across different economies, our asset allocation changes to reflect that, and if it looks to be at a mature stage in a specific country then our natural focus on credit quality becomes more important; we are always trying to avoid next year’s problem credits, whether in the financial, corporate or securitised markets.