ECB Has Limited Power to Help the Asset-Backed Securities Market

Investors are demanding the highest yield premium in four months to hold asset-backed securities in euros as stimulus measures fail to revive the region’s $253 billion market.
The European Central Bank has bought 6.2 billion euros ($6.8 billion) of notes since November as part of a 1.1 trillion-euro quantitative-easing program that also includes covered bonds and government debt. The purchases of securities backed by business loans, mortgages and credit card debt, which are meant to encourage lenders to offer more credit, are short of expectations, according to Dipesh Mehta, a director of securitization research at Barclays Plc in London.
“The recent widening of ABS bonds have made it clearer than ever in investors’ eyes that the ECB has only limited powers to rejuvenate the eurozone ABS market,” Mehta said. “The ongoing uncertainty around Greece isn’t helping either.”
The average spread over benchmark rates on asset-backed bonds in euros is now 73 basis points, the highest since Feb. 3, Barclays index data show. Yield premiums on notes from Europe’s periphery rose the most, with Portuguese mortgage bond spreads climbing to as much as 160 basis points from 90 basis points in March, according to Barclays.
Senior-ranking Spanish residential mortgage-backed securities that are eligible to be purchased by the ECB trade with a yield premium of 84 basis points, up from 62 basis points on Nov. 21, the day the Frankfurt-based institution first bought asset-backed notes, according to JPMorgan Chase & Co. Spreads on similar bonds from Italy rose to 74 basis points from 70 basis points in the same period, JPMorgan data show.

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