RMBS activity still not sustainable

Participants in the asset backed securities market are sceptical that a sustained recovery is under way, despite evidence of accelerating deal flow and improved pricing.

Speakers at last week's Australian Debt Markets Conference said the market was "fragile", the deals that were getting done were opportunistic and that pricing did not offer sustainable funding for originators.

Last week Macquarie Group's mortgage securitisation vehicle Puma priced a $315 million note issue.

The senior notes of Puma Masterfund P-15 were sold at the 30-day bank bill swap rate plus a margin of 110 basis points.

Two weeks ago Puma sold $270 million in low doc loans at a spread of 180 basis points over swap.

In May, Citibank priced a $500 million RMBS issue, Securitised Australian Mortgage Trust 2008-1, at the bank bill swap rate plus 145 basis points.

The action continues. Yesterday Moody's assigned a rating to a $94.7 million CMBS issue, Frontier Funding 2 Trust. All the loans in the pool are commercial mortgages.

Moody's senior analyst Richard Lorenzo said Frontier Funding was a new issuer. He was not at liberty to say what originator was behind it.

On Friday Standard & Poor's issued a preliminary rating for a $470 million RMBS, Maxis Loans Securitisation Fund 2008-1.

The loans, originated by Members Equity Bank, are all prime residential mortgages. The average loan to valuation ratio is 64 per cent, the average loan size is $162,000 and the pool has 4.7 per cent subordination.

One surprising feature of the loan pool is that average seasoning is 40 months. This has given rise to speculation that MEB is cleaning out a warehouse (probably provided by Westpac).

Bank of Queensland revealed in a presentation at the UBS financial services conference last Thursday that it had made a private placement of $500 million of mortgage backed securities early in June.

Global head of economics at Westpac, Bill Evans, said: "I am pessimistic that we will see an active securitisation market for two years.

"It is a US problem. It is the big market for securitised assets and it needs to recover."

Commonwealth Bank head of debt research Adam Donaldson said: "Recent events could prompt you to say the market is up and away.

"But we can't identify too many investors prepared to invest at 110 basis points over bills. And even if you could get a deal away at that price it is not economic for issuers to re-open their channels.

"These periods will come and go. It is not a true opening of the market."

Macquarie Bank debt markets director Kevin Lee said investors were still concerned about the mortgage asset class. He said there was still lots of mortgage paper in the secondary markets.

Lee said: "We are seeing some mortgage deals but it is very early days and with SIVs selling their investments it comes in waves.

"It is a very opportunistic market. If issuers can build a book they will price a deal. You wait for the window. You have to use some guerilla tactics."