Citi: Sandy's Impact on ABS Minimal


According to a report today from Citigroup Global Markets, U.S. consumer ABS spreads remain unchanged over this "Hurricane-Sandy-shortened week."

Citi analysts added that the low level of secondary trading that took place seems to be a function of it being month-end, instead of a directional shift.

Because of this calamity, catastrophe bonds have once again come under the radar of market participants. Citi analysts added that although Hurricane Sandy has made the market more curious regarding this asset class, it is still comparatively small and not well-distributed or actively traded.

They explained that structures usually comprise bespoke risk exposures and most buyers would generally diversify their portfolio of risks. Insurance firms and hedge funds tend to be this sector's principal investors.

Analysts also do not believe that the potential property/casualty insurer selling will have a big effect on the ABS market. The ABS market buyer base is diversified and this group does not comprise a key part of the comparatively short-weighted average life ABS market, Citi analysts said. It should also likely take awhile for the insurers to assess their potential liabilities from the storm, analysts said.

The ABS new-issue market this week, although initially derailed by Sandy, has picked up. More than $4 billion of new-issue ABS deals were announced yesterday, representing a diversified group of ABS sectors, including the following transactions: a five-year credit card deal, a FFELP student loan offering, a diversified dealer floorplan ABS and an auto loan securitization, analysts reported.

They noted that year-to-date supply has reached $162 billion, which is roughly 67% ahead of the comparable 2011 period. Auto ABS, at $87 billion, comprises about 54% of the total.

But, analysts said that runoff has mostly outpaced new-issue supply, and the technicals are contributing to the tight spread environment. As of 2Q12, outstanding auto ABS registers 30% less than the comparable 2006 period.


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