Before the subprime crisis laid the foundation for the government to today dominate the issuance of mortgages into securitization pools, the global structure finance market dominated the liquidity landscape.
Now according to Standard & Poor’s, that lion is preparing to roar again.
“Overall, moderate economic growth and low rates were a tailwind for issuance in the first half of the year,” write analysts James Manzi and Tom Schopflocher, in their latest report. “Although we may see some headwinds from geopolitical uncertainty in the second half of the year, we continue to forecast approximately $1 trillion of global securitization by year-end 2018.”
The trillion-dollar mark is a psychological barrier, to be sure, as several times in the past five years issuance reached similar levels. But today’s note, as the analysts state, is underpinned by a growing global uncertainty, of which securitization investors seem unafraid.
Will the actions of our leaders, really be brushed off so easily by the bond markets? If so, it may be aided by the growing strength and diversification in the global, structured finance space at the asset level.
The U.S. market for residential mortgage-backed securities, those not backed by Fannie Mae and Freddie Mac, is a perfect example.
“RMBS added $11 billion in June, easily the most active month YTD. This brought the 2018 volume to $43 billion, which is a 30% year-over-year increase,” the analysts write. “A wide variety of collateral continues to be the story for the RMBS sector.”
Credit that wide variety to non-QM upstarts such as Angel Oak, et al, which posted a major increase in its private-label (non-GSE) securitization.
All signs point to the S&P trillion dollar prediction coming true.
Angel Oak Capital Advisors, the investment management affiliate of Angel Oak Companies, recently completed the largest non-QM securitization in company history – a $402 million securitization.
“We’re growing in every aspect of our business,” says Mike Fierman, co-CEO of Angel Oak Companies. “We don’t see that slowing anytime soon. In fact, we believe this is only the beginning.”
Here are the key regional trends from S&P:
- In the U.S., issuance was up 16%, with all four major sectors (ABS, RMBS, CMBS, CLO) reporting y/y gains – the exception was credit card ABS which saw a slowdown from last year.
- Canadian ABS saw a significant uptick – primarily in the loan segment – as cross-border issuance remains on par with 2017.
- In LatAm, while real GDP growth is up in most countries, falling currencies, tighter financing conditions and political uncertainty put pressure on securitization
- In Europe, we saw healthier issuance volumes – up 30% y/y – against a backdrop of steadily increasing regulatory certainty.
- Chinese securitization issuance continues to boom thanks to RMBS – however, more-stringent regulations could moderate issuance levels.
