Low volatility and strong investor appetite lure new issuers

The primary ABS market remained robust in July despite the typical summer slowdown, with strong issuance and investor demand across various sectors, according to monthly European and UK factsheets monitored by SCI.

Amundi’s portfolio managers observed significant activity in July, particularly among new ABS issuers capitalising on the relatively low market volatility and high investor appetite. “These transactions have all been well received by the market,” the firm said, emphasising the success of new issuances despite a challenging economic backdrop.

Amundi also acknowledges the ongoing issuance of buy-to-let transactions in the UK, which has persisted despite high interest rates, thanks to the use of older production to meet issuance needs.

TwentyFour AM Momentum Bond Fund’s managers echo this sentiment, observing a healthy pipeline for post-summer activity. They reported that primary issuance YTD reached €90bn, with €11.5bn in ABS issued in July alone.

The firm notes strong performance of collateral deals, with only limited deterioration in riskier pockets like pre-GFC mortgage collateral and certain CMBS. “The market has shown resilience, with supportive macroeconomic conditions and healthy demand for new issuances,” TwentyFour says.

Aegon European ABS Fund’s managers also highlight the strong performance of European ABS markets in July, with tightening spreads and buoyant primary supply despite the summer slowdown. Demand often exceeded supply, reflecting resilience amid macroeconomic uncertainties.

On the fund management front, Amundi remained active in both primary and secondary markets, participating in key issuances in Germany and the UK, while also making opportunistic acquisitions in the competitive secondary market.

Aegon focused on the primary market, increasing AA and BBB exposure and boosting holdings in ABS and CLOs, while reducing CMBS exposure.

While, portfolio managers at TwentyFour focused on rotating assets as the market quietened for the summer. They sold AAA bonds with tightened spreads, reinvesting in shorter mezzanine consumer ABS and BBB CLOs, where spreads appeared attractive, with the purpose of reducing cash holdings and adjusting the portfolio's beta.

As the European ABS markets look ahead to the second half of 2024, all three firms agree on the market's resilience and the opportunities it presents, particularly in light of favourable carry and attractive valuations. Aegon states: “With current income providing a stable return, European ABS is well-positioned to continue delivering attractive total returns for the remainder of the year.”

Fund specifics:

Aegon European ABS Fund returned +0.62% in July 2024. YTD: 5.01%
Fund size: approx. €1.1bn. ABS/MBS allocation: approx. 78%.

Amundi ABS returned +0.60% in July 2024. YTD 4.53%
Fund size: €1.096.16bn. ABS/MBS allocation: 58.59%.

Janus Henderson ABS Fund returned +0.72% in July 2024. YTD: 4.86%
Fund size: £354.24m ABS/MBS allocation: 55.20%.

TwentyFour AM Monument Fund returned +0.61% in July 2024. YTD: %
Fund size: £bn. ABS/MBS allocation: 62%.

Note: Earlier this month, Ostrum AM’s two European ABS funds were transferred to Loomis Sayles, including the Ostrum Euro ABS Fund that we have previously tracked. The information we previously reported is no longer accessible online.

Selvaggia Cataldi