Origination of European securitisations will probably slow for the full year versus 2006, the first time this has happened since 2000, as credit market turmoil bites, the European Securitisation Forum said on Tuesday.
The industry lobby group said in a report that issuance of asset-backed securities in the third quarter, including issues priced by banks but retained on their balance sheets, was 89.5 billion euros ($130.8 billion), down sharply from 164.8 billion in the second quarter and 113.5 billion euros in the third quarter of 2006.
Issuance in the first three quarters is still 36.2 percent ahead of the same period of 2006 at 393.2 billion euros, thanks to a record first half, the group said.
"Reduced investor risk tolerance after a period of high levels of liquidity is at the root of the changed market conditions in the third quarter," the ESF said. "The market is going through a period of investor deleveraging and retrenchment."
The group said that secondary market conditions in the third quarter had been unprecedented due to a combination of contagion from the U.S. subprime mortgage crisis, global credit repricing and increased volatility.
"The market has clearly repriced. The spreads appear to be driven more by liquidity than fundamental credit quality considerations."
During the third quarter, for instance, spreads on five-year triple-A UK prime residential mortgage-backed securities (RMBS) widened to 55 basis points from 10 basis points, while those on non-conforming UK RMBS widened to 105 basis points from 20 basis points, the ESF said.
At the end of the third quarter the total amount of European securitisations outstanding was 1.32 trillion euros, it said.