2012 issuance down 9% YoY at ¥4.5 trillion; we are forecasting ¥4.6 trillion in issuance for 2013
According to figures compiled by our Securitization Products Research team, issuance of Japanese securitized products for the 2012 calendar year was down 9.3% from 2011 at ¥4.5294 trillion, mostly in line with our initial forecast of "approximately ¥4.7 trillion". This total broke down into ¥258.9 billion for the equipment lease sector (+29.8%), ¥730.5 billion for the credit ABS sector (+43.6%), ¥350.8 billion for the consumer loan ABS sector (–49.4%), ¥2.3721 trillion for the RMBS sector (–12.3%), ¥223.2 billion for the CMBS sector (+188.2%), ¥45.6 billion for the CDO sector (–81.6%), and ¥548.3 billion for the "other" sector (–2.8%).
Japan Housing Finance Agency (JHF) RMBS issuance for 2012 was down 22.7% from 2011 at ¥1.8378 trillion, but issuance outside this sector actually rose slightly (+2.9% YoY) to ¥2.6916 trillion.
We are forecasting a roughly 2% increase in new origination to approximately ¥4.6 trillion in 2013 despite the prospect of further declines in JHF RMBS issuance following changes to the Flat 35S loan program.
JHF RMBS spreads likely to hold relatively steady
With the creditworthiness of JHF RMBS likely to remain fundamentally unchanged, we expect that JHF RMBS spread levels will continue to be driven primarily by supply/demand factors. Many investors are likely to start viewing the sector in a more favorable light after seeing spreads move to significantly wider levels in December (for JHF RMBS No. 68), but at this point in time we do not anticipate a resumption of unchecked tightening. Issuance amounts continue to trend lower in the longer term, but some individual offerings are likely to be relatively large due to seasonal factors and other technical one-offs. Moreover, investors appear to have grown rather more conscious of upside risk to Japanese long-term interest rates. We therefore expect spreads to stabilize somewhere around their current levels—which should help to ensure that primary market offerings are readily digested—rather than moving back into one-way tightening mode.
Rating actions for 2012: 318 upgrades, 497 downgrades
318 Japanese securitized product tranches were upgraded in 2012 (down 25 from 2011). 497 tranches were downgraded (down 161), with a sharp fall in the number of CMBS downgrades offsetting a big increase in the number of CDO downgrades. Performance generally remained solid for other asset classes. We expect to see a further decline in the total number of downgrades in 2013.
Special report: BCBS consultative document on treatment of securitization exposures
The Basel Committee on Banking Supervision (BCBS) last month published a consultative document entitled Revisions to the Basel Securitisation Framework, with the proposals outlined therein seeking "to make capital requirements more prudent and risk sensitive, mitigate mechanistic reliance on external credit ratings, and reduce cliff effects". If implemented, the revisions would generally result in higher risk weights for highly rated securitization exposures and lower risk weights for low-rated senior exposures. Risk weights applicable to retained securitization exposures held by an originating bank would also be reduced significantly.