Busy week points to standout September for European and Australian ABS and MBS

As the third quarter of 2024 winds down, September is shaping up to be a standout month for the European and Australian ABS and MBS markets. According to a recent JP Morgan report, the ABS market roared back to life in the first week of the month, following a volatile August marked by recession risks and central bank uncertainty.

JP Morgan's research strategists point to a surge in primary market activity in Europe, with 12 deals placed with investors in just seven business days, making it one of the busiest weeks of the year.

The report notes that YTD European ABS issuance has now surpassed last year’s total, with €67.8bn in distributed issuance. 

JP Morgan’s research strategists say: “With the current YTD total now also sitting just €8.7bn below the prevailing post-crisis record of €76.5bn set in 2018, and with another nine transactions already in the pipeline, it’s exceedingly likely that supply will reach a new, post-GFC annual record by the end of this month.”

Similarly, the JPM research team points out that Australia is experiencing a boom, with issuance exceeding €31.7bn and nearing last year’s record of €33.2bn.

As mentioned by the report, the momentum is particularly strong in sectors like auto ABS and UK buy-to-let RMBS. 

“Investors seem to be relatively eagerly digesting the available paper, with outsized demand for non-senior risk still a particularly prevalent theme. In the UK, BTL RMBS issuance continues to impress.”

The report adds: “Meanwhile, primary activity in the Eurozone over the past two weeks has been heavily focused on the auto sector, [with] six auto deals from as many jurisdictions, including Austria, France, Germany, Italy, the Netherlands and Spain.”

As September unfolds, the market's resilience is clear. Despite potential macroeconomic headwinds, the depth of demand suggests that new records could be set before year-end, making this truly a September to remember.

On the secondary market front, JP Morgan’s strategists state that spread performance in recent weeks has also been benign.

“With indicative levels on senior risk in the Eurozone and the UK having tightened 5-10bp and 4-8bp, respectively, since 9 August, and non-senior risk in both regions 20-25bp tighter over this period, current levels are now flat to or modestly tighter than levels recorded at the end of July – thus confirming (at least so far) our expectation that the quick sell-off in early August did not mark the start of a more prolonged widening trend.”

Looking ahead, JP Morgan’s strategists are still concerned about potential weaknesses. This is “particularly with regard to ongoing recession risks and the trajectory of central bank easing, while the continued influx of ABS primary supply in the coming weeks can test the depth of the investor base and their resolve to absorb paper.” 

The report adds: “With this in mind, though we don’t expect spreads to move materially from current levels over the near-term (in either direction), we continue to believe that some caution is warranted in the coming weeks.”

Selvaggia Cataldi