Alliance & Leicester has completed a £400m residential mortgage-backed security (RMBS) issuance – only the second mortgage-backed bond issue to take place in the UK this year.
The bonds, which were split into two tranches, all backed by prime UK residential mortgages. The tranches were created for and bought by two separate institutional investors.
In May, Bank of Scotland Corporate issued a £500m RMBS. This compares to £96bn of RMBS issuance in the first half of 2007. The credit crunch, and the financial meltdown created by losses on US subprime mortgage securities, wiped out appetite among investors for asset-backed securities, including commercial mortgage-backed securities.
Over the past month, spreads on double A-rated CMBS default swaps, which measure the cost of insuring CMBS and are seen as an indicator of market sentiment over the likelihood of commercial property debt defaulting, have spiralled from 750 basis points to more than 1000 basis points.
This indicates that the financial market fears that there are more losses to come for those who have issued commercial mortgages or bought CMBS.