Unseasonably high activity defies market volatility and summer slowdown

In an unexpected twist, the typically quiet international primary market in August has burst into activity, with two UK RMBS and two Australian RMBS deals making notable strides. According to a recent JP Morgan report, this surprising surge of activity has unfolded despite the prevailing market volatility and the customary summer slowdown.

JP Morgan's research strategists point out that the recent UK RMBS deals were either pre-placed or involved relatively short marketing periods. These transactions included a senior tranche from London Wall Mortgage Capital 2024-01 by Citi and a prime RMBS deal from Santander, Holmes Master Issuer 2024-2. The latter adopted a non-traditional marketing strategy with a set pricing spread, which managed to capture investor interest in just two days.

The report notes: “Though this strategy was perhaps employed to mitigate the impact of market volatility and heightened uncertainty, the deal still garnered a weaker reception from investors relative to what we have seen throughout 2024 YTD.”

As a result of this flurry of activity, JP Morgan reports that year-to-date (YTD) distributed European ABS issuance has surged to €59.7bn in 2024, marking a nearly 50% increase over the post-crisis average of €40.3bn.

JP Morgan's strategists further highlight that “London Wall Mortgage Capital 2024-01 and Holmes Master Issuer 2024-2 represented the 11th UK BTL RMBS and 11th UK Prime RMBS deal, respectively, sold this year, as distributed issuance in these market segments has reached €4.9bn and €6.8bn, both approaching the corresponding totals of €5.4bn and €8.3bn sold in FY 2023.”

On the other side of the globe, the report underscores the significance of the two Australian RMBS deals: Series 2024-2 REDS Trust and Pepper Residential Securities Trust No.40. These transactions have propelled YTD distributed issuance in the region up by €1.4bn to €29bn.

“Pricing execution in the Australian RMBS market remains relatively strong,” the report continues. “Both deals were able to upsize – to a collective A$2.25bn from a combined, originally targeted size of A$1.25bn. Though, classes A1, A2, B and C of Bank of Queensland’s REDS Trust Series 2024-2 did price at the wide end of guidance.”

Looking ahead, JP Morgan’s strategists maintain a cautiously optimistic outlook for the primary market in September. While they anticipate continued healthy activity, they also expect investors to demand pricing concessions, which may result in wider spreads and steeper credit curves compared to July. For now, they recommend adopting a ‘wait and see’ approach to gauge the full impact of recent market fluctuations.

Selvaggia Cataldi