NEW YORK U.S. asset-backed securities held steady in quiet trade on Monday as a building calendar of fresh supply captured investor attention.
"Market activity has been thin today. Most people are looking at the new TALF deals," said an ABS investor.
Issuers marketed $4.3 billion of ABS deals ahead of the October 2 subscription round under the Federal Reserve's Term Asset-Backed Securities Loan Facility, known as TALF. Through its program, the Fed makes loans available to investors for the purchase of AAA-rated securities backed by consumer debt.
Harley-Davidson and Mercedes-Benz were among the latest issuers to join the fray of firms offering deals under the October TALF. Ford Credit and CitiFinancial announced sales last week, market sources said.
A $700 million AAA-rated deal backed by motorcycle loans will be offered by Harley-Davidson, while a $1 billion auto ABS deal is being marketed to investors by Mercedes-Benz, market sources said.
Another $1 billion of five-year dealer floor plan ABS will be brought to market by Ford Credit, while Citigroup marketed a $1.4 billion AAA-rated sale on behalf of CitiFinancial Auto Issuance Trust, market sources said.
In September's subscription round, investors requested just $6.5 billion of TALF loans from the Fed for the $16.6 billion of ABS securities offered under the program. Since its launch in March, some $77 billion of ABS deals have been sold under TALF, while $47.5 billion of loans have been made to investors.
The tone in the secondary ABS market remains improved with spreads continuing their tightening rally through last week, traders and analysts said.
Spreads on AAA-rated auto and credit card securities have come in by 450 basis points from their record wides last year. Two-year AAA-rated credit card issues now trade at a leaner 55 basis points spread over Libor, leaving investors to seek extra returns down the credit spectrum or in other asset types.
"You're going to see a flattening of the credit curve. The next move is going to be credit spread tightening between A-rated and BBB-rated credit cards," the ABS investor said.
Already, lower-rated classes have come in substantially from their wides on the demand. Credit card BBB-rated issues narrowed by 75 basis points last week to trade at 325 basis points over swaps, analysts said.
(Editing by Kenneth Barry)