What a week to kick things off in ABS! A €2bn order book on a European securitization remains a relatively rare species, but Volkswagen’s VCL 44 managed that feat and Toyota’s Koromo Italy II wasn’t too far behind.
The two deals are interesting to compare for lots of reasons, not least their ESG credentials, which George opined on in this free-to-read column.
It's worth repeating this bit though: this is Italian paper getting near €2bn of orders. It is remarkable when you look back at Toyota’s first visit to the Italian market in February 2023.
There had barely been a publicly placed Italian deal in 2022, but Toyota stormed to a €1bn book and tightened pricing to 80bp. Guess who else priced a trade that day? Volkswagen, with VCL 38, which landed at 43bp.
This time around that gap of 37bp has been slashed to 19bp. Volkswagen printed at 49bp, Toyota at 68bp. Mostly, it's Toyota narrowing the gap — which speaks to a general hunt for yield among investors that has driven juicier assets out of Italy and Spain tighter and tighter.
Meanwhile, Volkswagen has drifted a little wider, and there is some negative sentiment around the German car industry at the moment. Plus, that 2023 deal was just around the time that the ECB’s ABS purchase programme was coming to an end, which definitely hit issuers looking to place size.
Still, with such a huge book there could be room for the euro primary market to tighten from here. BMW is up next and we will see.
The relative value between UK prime RMBS and UK non-conforming or buy-to-let RMBS has also been reconfigured by this hunt for yield. Prime is at 53bp for Santander’s Holmes 2025-1 last week, while by most accounts a primary buy-to-let trade might come in the 70bp to 80bp range — a relatively skinny add-on.
Prime has a larger audience, better liquidity and theoretically superior credit quality, so if you’re an asset manager perhaps you might as well buy the prime at those prices? Certainly, more buyers seem to be taking that view.