| ABS issuance and Interest rate outlook |
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| In what has been a quiet year so far for domestic securitisation issuance, EBS Building Society has kick-started the market with the first issue of the year, a €750 million mortgage backed security (MBS). |
ABS issuance
In what has been a quiet year so far for domestic securitisation issuance, EBS Building Society has kick-started the market with the first issue of the year, a €750 million mortgage backed security (MBS).
This is the first Irish domestic issue since Friends First securitised €250 million of its motor and consumer loan book last August, and the first MBS since First Active’s €750 million deal in October 2001.
It is EBS’s third securitisation since its first Emerald deal was launched in 2000, and this deal is expected to be followed by another issue from First Active later on this year, which will be First Active’s eighth issue following on from Celtic 1-7.
Based on this evidence, it appears that the domestic mortgage banks will stick to securitisation as a method of funding, despite the launch earlier this year of the first Irish covered bond or asset covered security (ACS), which was launched by DEPFA in February.
When this new ACS market was originally conceived, it was designed to be a funding vehicle for both domestic mortgage banks such as EBS and First Active, as well as the larger public finance banks such as DEPFA.
However, launching an ACS is more expensive than securitising, and issue size is generally much larger -DEPFA’s ACS was €5 billion, compared to EBS’s €750 million MBS - hence the mortgage banks’ continued preference for securitisation.
Interest rate outlook
With euro interest rates falling consistently since 2001, a key question on corporate treasurers’ minds is when will they bottom out or will deflation grip global markets before the final upturn?
In this month’s FINANCE we try to throw some light on that question by polling Ireland’s foremost interest rate specialists on their expectations for short-term interest rates. The consensus view of the panel is that rates will probably decline further this year, before starting an upward trend in 2004. As such, they recommend that borrowers consider fixing at least some of their variable rate debt now.
As Dan McLaughlin, chief economist with Bank of Ireland says, ‘for many it is difficult to look at borrowing at a higher rate than the current floating option, but as we have seen in the past, once the cycle turns, swap rates can move up very quickly’
Niall Dunne, economist with Ulster Bank, also recommends fixing, and he is advising customers to utilise caps and collars for short-term hedging solutions.
However, one respondent believes that interest rates are not close to turning the corner. Donal O’Mahony, global bond strategist with Davy Stockbrokers, expects short-term interest rates to continue to fall over the next couple of years. He says that not only do interest rates of all maturities have further to fall, but that they will also stay lower for longer. He says that the time for borrowers to switch their liabilities from variable to fixed rates will ultimately arrive… but at altogether lower interest rates. |
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| Article appeared in the May 2003 issue.
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