S&P: Bond issuance hits yearly high; mortgage bonds not so much

RMBS issuance now tracking well below 2014 and 2015

Back in September, a report from Standard & Poor’s Global Ratings showed the mortgage bond well running dry, as the rate at which new residential mortgage-backed securities entered the market showed serious signs of slowing down.

Well, S&P updated that report Tuesday, complete with bond issuance from October, and the news isn’t good for mortgage bonds or mortgage bond investors.

According to the new S&P report, there was only $3 billion in RMBS-related issuance, which S&P defines as prime, re-performing/non-performing, rental bonds, servicer advances, and risk-sharing deals, in October, roughly the same as the previous two months.

S&P’s report stated that the issuance came in various forms, backed by a variety of collateral, as has been the case throughout most of the year.

According to S&P’s report, the year-to-date RMBS issuance now stands at $28 billion, down from $45 billion during the same time period last year.

In September’s report, S&P said that it expected 2016 to finish with a total of $40 billion in RMBS-related issuance, coming in below 2015’s total of $54 billion and just above 2014’s total of $38 billion.

But now, S&P is revising that forecast down.

Factoring in October’s weak figures, S&P now projects a total of $30 billion in RMBS-related issuance in 2016, coming in below both 2014 and 2015.

And S&P doesn’t expect the mortgage bond market to improve by much next year either.

S&P’s current forecast is for a total RMBS-related issuance of $35 billion in 2017, which again, would be below 2014 and 2015.

“Several private origination programs have shut down during 2016 as issuers fail to originate mortgage pools that could be economically securitized,” S&P’s report states.

“Our $35 billion 2017 forecast is based mostly on ongoing successful credit risk transfer issuance,” the report continues. “A potential wildcard to the 2017 forecast is if the private market figures out an economic issuance formula.”

While mortgage bonds came in low in October, the same can’t be said for the rest of the structured finance market, as S&P’s report shows that structured finance issuance hit a yearly high in October.

According to S&P’s report, there were $46 billion in structured finance issuance in October, which tops the $39 billion prints in May and July.

In addition to the $3 billion in RMBS-related issuance, October also saw $27 billion in asset-backed securitization, $8 billion in collateralized loan obligations, and $8b billion on commercial mortgage-backed securitizations.

And while October proved fruitful for other asset classes, S&P doesn’t expect much issuance for the rest of the year.

“Although October 2016 faced a tough issuance comparison from October of last year, at $43 billion, the final figure actually came in a bit higher. Heading into November and December, we expect activity to slow noticeably,” S&P’s report states.

“All eyes will likely turn to the election over the next week or so, and as we expected, pipelines appear light,” the report continues.

“Following the GDP data release on Oct. 28, the implied odds of a rate increase at the Federal Reserve Board's Dec. 13-14 meeting–always a source of market uncertainty–jumped a few percentage points to approximately 75%,” S&P’s report continues.

“The onset of risk retention on Dec. 24 is also likely to slow CMBS and CLO issuance, as considerable uncertainty with how the market will evolve still exists,” the report continues. “Finally, assuming little or no activity during the week of Thanksgiving and the Dec. 19-31 period, there are only six full weeks of business days remaining in 2016.”

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