Asset Backed Securities

In the past two years the diversity of supply in the ABS market has been restricted by the availability of cheaper funding alternatives, both in the Eurozone through the TLTRO and in the UK, where the BoE Term Funding Scheme has suppressed issuance from the traditional banks and building societies.

It’s been an interesting week for European CLOs; one of our favourite picks in fixed income. 

The last ten year period has seen supply from various parts of the ABS market ebb and flow.

For many years ABS has primarily been used as a funding tool for banks and other lenders.

It seems a long time since the European ABS market saw any meaningful volatility.

Nearly 4,000 international ABS market participants attended the Association for Financial Markets in Europe’s Global ABS Conference last week, the biggest attendance since the financial crisis.

For the first time in a decade, fixed income investors face a rising rates environment.

European ABS market performance and volatility have been remarkably stable since 2016, largely weathering broader credit weaknesses so far this year.

Last year we wrote about the forthcoming "STS" (Simple, Transparent and Standardised) regulation for securitisation, designed in part to harmonise eligibility and capital charges for ABS across the wider regulatory landscape.

Several times this year we have discussed the benefits of “roll down” in an environment that for fixed income investing is particularly unfriendly. We believe roll down gains will be one of the best ways to protect portfolios in 2018 from the rising rate curves that we have been experiencing so far.

Five years ago, the European CLO market restarted when Cairn issued the first post-crisis CLO in Europe – the start of the 2.0 market – and after a slow first year we have seen plenty more CLOs coming to market from a large mix of legacy and new managers.

All good things must come to an end, and from today UK bank treasurers face life without the Term Funding Scheme (TFS).