Do European ABS remain attractive to investors?

09/05/2018

With issuance likely to increase, the relative value of European ABS is expected to remain attractive to investors.

We believe that yield spreads for European asset-backed securities (ABS) are likely to continue slowly grinding tighter towards those available on other similarly-rated fixed income assets.

The introduction of the new Simple, Transparent and Standardised (STS) securitisation framework may provide greater flexibility for investors, such as insurers, to invest in an asset class they have found attractive in the past. Heavy Solvency II-related capital charges currently inhibit demand for ABS.

ABS issuance is expected to grow and that trend supported by the scaling back of quantitative easing programmes of the main central banks. An expanding market is expected to be met with more new investors, such as pension funds, attracted to the ABS market.

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The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.