Asset Backed Securities

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.

Several times this year we have discussed the benefits of “roll down” in an environment that for fixed income investing is particularly unfriendly. We believe roll down gains will be one of the best ways to protect portfolios in 2018 from the rising rate curves that we have been experiencing so far.

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.

As most of our readers know, ABS is an asset class that lends itself well to detailed underwriting, from onsite due diligence through to cashflow and risk modelling.

The BTL sector has taken a bit of a pounding over the last couple of years, as authorities introduced a number of harsh measures to counter fears of “financial stability risks” posed by growth in lending, with concerns that future financial tightening could lead to a surge in landlords looking to exit the market should they become stressed, and subsequently cause a house price crash.  The measures included: