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Investments

$640 million in subprime-boom bonds coming to market

Two lists of “major” non-agency RMBS to bid separately

bonds

Coming on the heels of two recent “all or nothing” sales of subprime vintage debt, $640 million more in non-agency subprime debt is scheduled to trade on Tuesday.

In recent weeks, two separate bond deals from BlackRock have jumpstarted a market that has been slumbering since January, when the Dutch State Treasury Agency liquidated the last $4.3 billion residential mortgage-backed securitization remaining from the ING US portfolio.

The January 16 sale of the ING portfolio was the largest single day of non-agency RMBS selling activity prior to BlackRock sale of $3.7 billion in debt on July 15, according to Interactive Data, which monitors secondary market bond trading.

The following week, Credit Suisse won two separate bids for a combined $4.4 billion pool of legacy RMBS, also sold by BlackRock.

Now, two more lists of bonds are scheduled for sale on Tuesday. “The seller or sellers were not announced broadly and these seem more widely distributed across the street as opposed to the last two large liquidations that were run last week,” said David Varano of Interactive Data.

The two lists of bonds total $640 million and are made up of bonds from 2006-2007.

The first list is currently valued at $429 million and is built on subprime pre-crisis mortgages.

The second list is valued at $211 million and is built on a varied pool of loans, including subprime, Alt-A hybrid and pay option ARM.

The timing of the bond offerings certainly doesn’t appear to be coincidental, considering the significant economic reports that are scheduled this week, beginning on Wednesday’s Federal Open Market Committee report. This week's data is expected to have a profound impact on the economy for the remainder of the year.

“My sense is that this is related to general risk reduction ahead of Wednesday’s FOMC announcement, Friday’s non-farm payroll report, and month end,” Varano said. “Additionally, this could also be driven by certain investors looking to test the market after it appeared to easily absorb those two massive bid lists last week in order to gauge current demand levels.”

Below is Interactive Data’s breakdown of the two bond deals for Tuesday. The times listed are Eastern:

The first list due at 10:00 a.m. tomorrow:

Contents: $429 million current face

# of line items:  20

Collateral - Subprime

Vintages - 2006-2007

Structures - Senior sequentials

The second list due at 12:30 p.m. tomorrow:

Contents: $211 million current face

# of Line Items: 14

Collateral: Mixed bag (Subprime, Alt-A Hybrid, Pay Option ARM)

Vintages: 2006-2007

Structures: Senior sequentials and passthroughs

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