As Milan Fashion Week drew to a close on Monday, it’s become hard to deny that the Italian consumer ABS market is so hot right now.
With the market going quiet after September, a flurry of deals have come since last week from Agos and IBL Banca, with Younited Credit exploring equity placement.
Spreads in the asset class are ratcheting in against the tightest deals around — German auto ABS.
Italy's Agos priced its deal at a tight spread of 67bp on Wednesday, 17bp tighter than when it last came to the market in September. Sunrise, another Italian deal, was priced at 84bp in September.
Compare that to Mercedes-Benz Silver Arrow SA Compartment 18, which landed in October at 50bp. German auto spreads have hardly budged since with BMW Bank's Bavarian Sky 14 landing at 47bp on January 28.
It is hard to justify the tightening between the two asset classes.
Sure, Germany is dogged by economic uncertainty and its auto sector has faced its recent challenges.
And of course, Italian collateral invariably cannot qualify for a triple-A rating. That makes it an obvious place to look for investors on the hunt for yield.
But Italy has its own problems. Cumulative defaults in recent Italian deals are ahead of previous vintages.
In addition, an increasing number of Italian consumers are borrowing to pay for living expenses rather than luxuries — a trend which is generally associated with lower credit quality.
Italy might have looked cheap for investors last year, but at this rate of of tightening, its ABS deals could fall out of style quickly.