Asset Backed Securities

European ABS primary markets have started 2021 at the solid pace that most market participants expected. The market saw a patchy Q4 in which activity petered out early, not helped by the dominant UK market suffering some hesitation whilst tightrope Brexit deal talks went to the wire, but also as a result of a rather more simple fatigue that appeared to have set in.

In this update, TwentyFour Partner and Portfolio Manager Ben Hayward addresses some of the key reasons he thinks investors should consider allocating to ABS sooner rather than later.

TwentyFour AM partner and portfolio manager Douglas Charleston discusses Q4 performance for ABS markets and provides his outlook for 2021.

Our analysis indicates European ABS investors can carry forward little concern about nasty default surprises, and this is likely to be important when considering total returns for 2021.

At the moment CLO spreads are tightening, as they are right across credit. However, we haven’t had any CLO primary deals come to market so far in 2021, so we are operating in a bit of an informational vacuum, at which point these cross-asset class comparisons can be useful.

Elena Rinaldi looks back at the performance of European CLOs in 2020 and explains how post-vaccine sentiment should help boost recovery in 2021, providing a positive outlook for CLOs.

So while we certainly expect unemployment to increase across Europe, and we expect more borrowers will fail to pay their mortgages, we believe current mortgage performance is very far away from a level that would threaten coupon and principal payments in the major European RMBS markets.

Having fallen behind other markets in the post-COVID rally due to a lack of direct central bank support, we believe European ABS is set to outperform other parts of fixed income in the coming months as supply wanes and investors look to pick up on what we think could be a compelling relative value opportunity.

Partner and Portfolio Manager Douglas Charleston discusses Q3 performance for ABS markets and provides his outlook for the remainder of 2020.

One of the legacies of Europe’s post-crisis lending landscape was a huge retrenchment in risk appetite, amplified by a lack of bank capital and in some instances funding for an extended period of time.

Overall CLO and loan performance have exceeded our expectations, though there are still plenty of headwinds for the market, chief among which is the prospect of further lockdowns and more economic disruption as Europe battles a second wave of COVID-19 cases.

European collateralised loan obligations – or CLOs – are bonds issued to fund a specific and diverse pool of corporate loans to firms of different sizes and in different industries all over Europe.