REFILE-IFR-ABS traders debate new Markit indices
Thomson Reuters
14 Jun 2011
Reporting by Jean-Marc Poilpre, Editing by Helen Wray
BRUSSELS, Jun 14 (IFR) - Conference delegates attending the secondary market trading panel in Brussels earlier today
heard traders discuss the new Markit ABS indices and how useful they will be.
Most traders were sceptical, pointing to past (and failed) experiences, although they tended to believe it is worth
giving it a try. The lack of volatility of the market is likely to make the index quite pointless, some argued.
Others noted that an index for UK non-conforming RMBS may not be of much help considering that transactions are not
homogeneous and need to be analysed on a case-by-case basis.
Morgan Stanley's Rehan Latif, however, "believes that the senior index stands a good chance of taking off".
Aside from the discussion on indices, the panel dedicated to secondary trading was more consensual than in previous
years. This year there was no debate over the role of agency brokers or the prop desks. Rather, traders focused on a few
problems and common threats, such as the implementation of Basel III or the risk posed by legacy assets.
Traders agreed that Basel III is a real problem. Jefferies' Craig Tipping noted that this new regulatory framework
creates uncertainty and therefore, some accounts simply sit on the sidelines waiting for more clarity or are starting to
look at other asset classes, such as covered bonds, which appear to be treated more favourably.
Rohit Hemdev, from Citi, argued that there will be a big readjustment. In his view, low rated securities (Triple C or
below) may well be dumped into the market to avoid the higher capital charges.
Another trader commented on the sidelines of the conference that higher rated securities may also be offloaded, but it
will depend on several factors such as liquidity and cash price. In any case, some bonds are likely to be sold at very
distressed levels.
The panel pointed to a booming sector for banks providing repo funding for holders of ABS/MBS portfolios, but only after
imposing a sizeable haircut. Several banks are happy to replace the ECB as provider of this type of funding, and traders
are involved in those trades, providing pricing expertise.
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