S&P: Mortgage bond market on track for best year since 2013


Thanks to the residential mortgage-backed security market continuing its strong performance in the month of May, RMBS-related issuance is now on track to have its best year since 2013, a new report from Standard Poor’s Global Ratings shows.

According to the SP report, 2017’s total RMBS-related issuance, which SP defines as prime, re-performing/nonperforming, rental bonds, servicer advances, and risk-sharing deals, sat at $27 billion at the end of May.

That’s more than double the total RMBS-related issuance during the first five months of 2016, when there was only $12 billion issued.

And according to SP’s report, if issuance continues at the same pace throughout the rest of the year, 2017 could see $65 billion of potential issuance, which would far outstretch SP’s current forecast of $50 billion.

In fact, based on the strength of the first few months of 2017, SP previously raised its 2017 forecast for RMBS issuance from $35 billion to $50 billion, so $65 billion in issuance would almost double SP’s original forecast for the year.

Additionally, it should be noted that 2017’s current projected RMBS issuance of $65 billion would be the most in four years, as 2016’s total issuance was $34 billion, while 2015’s total was $54 billion, and 2014’s total was $38 billion.

Breaking down May’s strong performance, SP said:

Monthly RMBS-related issuance reached a new monthly high of $6 billion, creating $27 billion of issuance so far in 2017. Credit risk transfers posted over $2 billion of the total spread across two Fannie Mae deals. Remaining offerings were supported by a variety of collateral, including re-performing loans, nonperforming loans, performing loans, prime, and seasoned performing.

Overall, year-to-date issuance of structured finance, which also includes asset-backed securitizations, collateralized loan obligations, and commercial mortgage-backed securitizations, now stands at $193 billion, up about 40% year-over-year, as shown in the chart below.

SP structured finance issuance May 2017

(Click to enlarge. Courtesy of SP)

As for the cause for the strong year, SP says it’s due to multiple factors.

“While no one specific factor is driving issuance, we note that conditions have been ideal, with tight spreads offering attractive financing levels for
issuers,” SP notes.

“Rates are also expected to increase, which may be driving some ABS issuers to move more assets off their balance sheets to free up capacity,” SP continues.

“Overall interest rates have remained relatively low and attractive to borrowers that currently have low debt service obligation,” SP concludes. “Prorating 2017 issuance so far would create more than $460 billion of issuance, but it is still difficult to say how much longer these ideal market conditions will continue.”

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