Barcelona outlook, sunny but a stiff breeze!

In the first week of June, the European asset-backed securities (ABS) market participants flocked to sunny Barcelona for the 28th Global ABS conference. The annual industry event was very well attended with over 5000 participants, including investors, issuers, bankers, lawyers, rating agencies, and corporate service providers, gathering to discuss the current and future trends in the market. Next to the usual European participation, a good number of Australian issuers, US investors and US Collateralised Loan Obligation (CLO) issuers were in attendance this year, perhaps the most we had seen in the post Global Financial Crisis (GFC) period.

Overall, the investor sentiment was very upbeat, given the strong technical in the market and performance seen in the last 18 months. The key topics discussed in the various investor panels included issuance levels, relative value of the asset class, CLOs, Significant Risk Transfer (SRT) trades and Australian securitisations, alongside geopolitical risks that are lurking in the background (with the US elections being the main event that investors are focused on).

As highlighted in our recent blog, we had seen record issuance volumes so far this year in Residential Mortgage-Backed Securities (RMBS) and CLOs, with issuance being very well absorbed as evidenced by the subscription levels on all the recent deals across the capital stack. This was particularly so on the mezzanine tranches, driving the spreads tighter. The underlying collateral performance, amidst the higher-rate environment has been much better than widely expected, with the (legacy) UK non-conforming sector being the key exception to this.

Australian RMBS/ABS issuance year-to-date has been significantly higher than the comparable period last year, with a number of these deals having good levels of participation from the European investor base looking for a healthy spread pickup and diversification. Before coming to Barcelona, many Australian lenders stopped over in London for an Australian only mini conference, highlighting the growing market and investor base.

While we jokingly said that the Global ABS conference could have rebranded to the CLO and SRT conference, it was striking that the panel on SRT was probably the most attended session, with the whole room packed. Despite the still limited size of the SRT market, the asset class has gathered a lot of interest recently and this was very evident in the book subscription levels and spread tightening. While this very interesting market is expected to grow further, with banks seeking to reduce risk weighted assets from their balance sheets, we stress that investors should remain diligent on not just credit but also remain sticky on pricing as they are not risk-free trades.

We have also had a number of meetings with a range of issuers, primarily the ones that are not based in London, with our focus mainly on consumer lenders, SRT issuers and (US & European) CLO managers, in addition to a number of Australian issuers we met the week before in London. 

We left Barcelona with a positive feeling, ready to explore some exciting new opportunities in the coming months. The new issue pipeline is already getting busy, with a number of deals expected to price this week and more to follow in the coming weeks, this is before the markets get quieter - ahead of the upcoming elections and inevitable summer holidays. We are feeling positive on the ABS volumes and spreads for the second half of 2024, especially with the Bank of England (BoE) on hold, but we remain cautious about the various geopolitical risks.