Page 40 - Future Demands Jan 2021

However, in its first few months, it looked very different than to before. Deals were almost all entirely retained or pre-placed – evidence that most issuers did not have full faith that investor appetite had returned to a pre-pandemic level where normal marketing of bonds was possible.
The importance of confidence in this part of the market should not be underestimated, as if a mortgage cannot be collateralised and securitised, it cannot be marketed in the first place.
tightened considerably, and continued to do so until late autumn, when news of a second wave brought jitters back to the market.
Fortunately, positive vaccine news seems to have reversed this, and, at the time of writing, spreads are once again reassuringly moving closer to pre-pandemic levels.
As with all crises, it is important to focus not just on the hardships, but also see the opportunities they create. When Britain voted to leave the EU in 2016, few RMBS-reliant
So far, RMBS performance has also weathered the storm relatively well. Despite the huge take-up of payment holidays by mortgage borrowers early on, we have not seen a significant decline in performance, and most customers have now exited these deferrals and are back on track.
The lack of mortgage products over the summer led to a slow down in normal voluntary repayment rates, although this has been reversed by pent up demand and the reintroduction of products in recent months.
FUTURE DEMANDS
“AS WITH ALL CRISES, IT IS IMPORTANT TO FOCUS NOT JUST ON THE HARDSHIPS, BUT ALSO SEE THE OPPORTUNITIES THEY CREATE”
Nonetheless, it was a relatively active summer, with over £6.5bn of placed bonds across 18 transactions between the end of June and mid-October. Only two of those came from banks, including one deal from Coventry Building Society’s Economic Master Issuer – the first new distributed UK Master Trust in over a decade.
Kensington’s RMS32 deal in July was notable in that it was the first RMBS deal after the start of the crisis to publicly market its full capital structure, successfully. Over the course of the summer, spreads
lenders would have predicted it would lead to better funding conditions for them, but the TFS-driven decrease in RMBS issuances from deposit- takers did just that.
The imbalance in supply and demand helped drive funding spreads tighter for non-bank issuers whose bonds became increasingly coveted in a supply-light market. The new scheme has once again jettisoned UK banks and building societies’ securitisation funding needs, so we expect issuances in 2021 to come predominantly from the non-bank sector.
It is difficult to predict where the dust will settle come March 2021, when government support schemes for customers come to an end, leaving a clear gap for many, but if nothing else the last few months have shown that the market is resilient, which gives us cause for optimism.
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