Yesterday was the first day of the Global ABS Conference in Barcelona and Prytania’s team met a wide range of issuers and managers across many sectors.
One of the core themes overarching the conference is how to navigate the current environment. Unlike previous years, gauging a definitive market sentiment is proving difficult and there is a clear difference of opinion as to how fast interest rates will rise, creating significant market uncertainty as to performance in 2022-3.
SME, Mortgage and Consumer Credit originators seem to think risk sentiment is overdone, as their underlying credit portfolios continue to perform well. Others are trying to look forward and assess the potential impact on new lending and address how best to mitigate that risk. Few are saying they are pulling back from, or indeed seeing any pullback in demand, for their loan product.
There seems little desire for sponsors to look at new EU/UK CMBS issuance in the near term, rather they seem happy to use their own capital and retain risk rather than ‘pay up’ trying to place a new deal in current market conditions.
Some CLO Managers think the market is very challenging at the moment. The arbitrage is very difficult and there is little refinancing activity in prospect. The consensus is that mostly Tier 1 CLO managers are able to print deals, leaving the less popular managers with a more difficult path ahead on pricing.
Depending on the rate view, US Non-QM mortgages and US agency SRT can now be seen as quite attractive, ‘though only as long as duration risk is not a concern to investors’. Otherwise, the appeal of staying in floating rate notes, like more senior European ABS and CLOs, until the rates have been hiked remains persuasive.