December 15, 2020
The structured products market has concluded that the election is settled and while equities react haphazardly to vaccine news, it feels like the structured products market has taken a longer-term view, meaning business continues as normal which for this time of the year is putting the final touches on portfolios and preparing for a new year. Funds eyeing their perhaps non-existent performance fees would prefer spreads to trade sideways for the month and save any rally for next year, while mortgage credit REITs will have some soul searching to do as the space seems ripe for consolidation. Seniors, juniors and subs across almost all asset classes took turns tightening since May, while some sectors had already rallied to a point where the impact of recent positive election and vaccine news has been muted. Seniors in sectors such as CMBS are actually tighter than pre-COVID levels; RMBS 2.0 seniors are above par and selective NPL/RPL bonds are back to where they were in February. There seems to be an insatiable demand for credit as investors continue to reinvest and put new money to work and credit assets in size are becoming harder to source. It seems the market is somewhere between complacency regarding what’s to come and desperation to pick up a basis point here and there among anemic returns. But there will be pain along the way as vaccines are rolled out and some sectors won’t have the cushion to insulate investors from mounting losses. Still, it’s not all doom and gloom if you can see beyond the mountain of surging COVID cases, as we have seen plenty of new transactions, loan sales and restructurings.
Read Methodical Structured Products Commentary here.
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