A familiar feeling has returned to European securitization this week. New issues are piling high in other markets, but the ABS market is still waiting for its first mandate of the year.
It could be read as a sign that securitization is back to tepid normality, after a stellar 2024. Indeed, by this time last year, two deals had already been priced, with another well on the way.
The slow start this year makes quite a contrast, but there is no need to be glum. Most forecasters expect issuance this year will reach similar levels to last. S&P, for instance, expects €135bn of issuance, compared to €137bn last year.
And the market will likely be moving soon enough. Some prime RMBS is expected this week or next and there is plenty to be done in CLOs as well.
Besides, last year’s fast start was the exception rather than the rule, driven by internal constraints for particular issuers. Typically, banks do a slug of unsecured issuance before the securitization market kicks into gear.
Last year was a record for European ABS volumes since the 2008 financial crisis. The previous record was set in 2021. In that year, the first public deal was not priced until January 15, but activity picked up in February and March, and even more so in an outstanding autumn.
As for this window, market conditions should still be constructive, so issuers can access the market if they want to. What could weigh on supply is that some issuers may have got funding out of the way early, for fear of volatility resulting from November's US election.
Even if you believe short term supply could disappoint, in the longer term there is plenty of cause to be positive about the future of Europe’s securitization market.
The market appears on the cusp of tangible progress on regulatory reform after a European Commission consultation, which closed last month. That could bring big changes to boost the market, like adjusting the rules to facilitate the return of insurance investors.
Even without regulatory reform, issuers are still innovating. Plenty of new issuers and new asset classes to Europe arrived in 2024. There was the first data centre deal, the first solar deal and the first deal to include retirement interest only mortgages.
That innovation will continue this year, and could be turbocharged in years to come if regulations begin to encourage it.
Meanwhile, pressure from Basel regulations on banks to manage their capital will likely mean synthetic securitization continues to grow and capital management transactions also comprise a growing share of the public market.
It's not just the forecasters who are optimistic. Anecdotally, investors across asset classes are ramping up their hiring efforts in anticipation of the rise in activity being sustained.
Be patient, there’s every reason to think securitization in 2025 will be worth the wait.