Dec 05, 2011
- Amelia Granger
Blog: Traders Grab Risk; Bankers Settle In For Holiday Nap
This time of year, it seems like traders would like to be paying more attention to making that winning bid on eBay auctions for holiday gifts, rather than tearing their hair out over the bid-ask spread. But last week saw traders scrambling for risk, even as bankers on the structuring side sat back and twiddled their thumbs.
The market’s in the midst of what’s typically the seasonal deadzone for both primary issuance and secondary trading, but a barrage of headlines swept the U.S. market last week, making the risk-on trade red hot. The U.S. Federal Reserve and other central banks’ move to reduce the costs of funding in U.S. dollars and buoy up the Eurozone was the main factor responsible for a strong week in agency mortgage-backed securities trading, according to Barclays Capital analysts led by Ajay Rajadhyaksha. Fannie Mae 3.5s through 6s were up 11-26 ticks versus the Treasury curve, he noted. Besides the Fed move, there was also a decent jobs report, successful European bond auctions and some better-than-expected U.S. holiday sales data making investors suddenly rush into risk. Rajadhyaksha’s team cautioned the mood should cool by year-end, but added juicy unknowns like the possibility of a QE3 including mortgage buys could have 2012 kicking off with a risk-on spree as well.
Asset-backed securities issuance played the traditional holiday role, however, keeping new deals to a minimum as the market rides out 2011. Two esoteric deals were all the action the primary market saw last week, as slightly downsized film library-backed bonds from Miramax Film (SI, 12/1) and a structured settlement deal from J.G. Wentworth (SI, 11/30) totaled $690 million for the period. But analysts see 2012 as being rosier for ABS than 2011 was -- JPMorgan Researcher Amy Sze projects $145 billion in ABS issuance in 2012 versus $133 billion year-to-date 2011. But how can she be so sure, given wider market unknowns like QE3? Well, Sze does casually note: “High sovereign risks (whether European defaults or US fiscal policy) are possible threats to derail the financial market as well as the economy.” Happy holidays!