The secondary European RMBS market has been reenergised by a busy and successful week or so of bid-list activity. However, S&P's counterparty criteria update (SCI passim) - and its potential impact on higher rated benchmark deals in particular - is causing some concern.
"The market is standing firm at the minute; there are a lot of buyers out there - or at least dealers who are happy to buy, thinking that there are buyers coming," one RMBS trader says.
This influx of buyers has driven the volume and outcome of bid-list activity over the past week or so, which has pushed prices up to significant levels. "We saw a large volume of bid-lists last week, with two or three launching a day - especially in UK non-conforming. They've had very good execution levels; levels that we haven't seen since 2008," the trader confirms.
He continues: "We had three in a row and every day the subsequent list was a point higher in pricing. Having said that, I've seen stuff on dealer offer sheets - as they bought it all - but I haven't seen much of it trade away from dealers yet."
The trader explains that while the bid-lists were extremely well received, activity has now stabilised somewhat, with one UK non-conforming list launching per day. "They are now selling at similar levels, perhaps dipping by a single point. Last week every single list was trading higher than the last, so it's levelled out now."It would be surprising if the dealers could find buyers. With the implementation of Article 122a, European credit institutions that invest in structured finance deals have to be able to document that they know what they own. As has been discussed before on this blog (see here, here, and here for example), in the absence of loan-level information on an observable event basis, these institutions cannot document they know what they own. As a result, they face both capital charges and liability if the purchases were done on a fiduciary basis.