SEC Reprieve Aside, MBS Markets Head into Summer Doldrum
Financial reform trepidations none withstanding, the mortgage-backed securities (MBS) market is heading into its summer slowdown as trading moved at a snail's pace today, with more of the same expected in the near future. According to several traders in the mortgage-backed securitization space, they are seeing less and less activity. While this is evident of the traditional seasonal adjustment downward, some are claiming this time it's different. "There is still some conflicting data, housing is better today than expected but not exactly rosy," said one trader. "Bonds are trading at higher dollar prices so buyers are less eager at these prices. Super senior triple-A CMBS are viewed as a good safe haven." The trader said things would have been much worse had the SEC not lifted its restrictions on credit ratings agencies, a move that prevented a near shut down of ABS markets. Currently bonds are trading though, but only at or through, relative to par. "There are just not a lot of new loans originating" on the street, said another trader. "I personally don't see major upticks until spring." Another trader lamented that the market left him "unable to maneuver," and that "dealers are stuck chasing their tails." "Today was the fifth day in a row where we tightened by more than 4/32," he said in an email. Not all markets are slowing at this time. Movement in the asset-backed commercial space (ABCP) is increasing as total CP outstanding increased by $8.2bn to $1.060trn last week. "The ABCP market saw very good investor demand but not nearly enough product to satisfy all the demand," said Credit Suisse traders in a note. "The main question from many investors again this week was 'Can you bring out more?'" Write to Jacob Gaffney. The author holds no relevant investments.