The Federal Reserve’s recent sales of Maiden Lane II assets culled from AIG continue to influence broader structured products markets and subprime mortgage assets, according to a new report from Interactive Data.
The Maiden Lane ‘bids-wanted’ list represented about 40% of bids-wanted activity for both non-agency and adjustable-rate CMOs and subprime RMBS during the month, according to ID.
Based on the company’s observation of bids, offers and actual trades, it said prices were generally weaker by about half a point across various categories of adjustable-rate products.
Maiden Lane assets represent nonprime MBS that the Fed took over from American International Group. (As reported by National Mortgage News recently, the government hopes to spin-off AIG’s nonprime unit through a REIT offering.)
Last week, the Federal Reserve Bank of New York sold $1.9 billion of RMBS from Maiden Lane, although initially $3.8 billion of product was up for grabs.
Recent vintage subprime paper weakened by approximately 2 to 3 points from late April through late May. Interactive Data said it believed Maiden Lane assets contributed to the weaker pricing because seasoned bonds that appeared to trade at the beginning of May traded in the second-half of the month at lower levels.
During the second quarter the market for subprime assets, in general, has been affected by the Maiden Lane portfolio and experienced softness, according to Richard King, CEO of Invesco Mortgage Capital. (A recent Keefe, Bruyette & Wood research report shows Invesco is not exposed to the subprime market, although it does have some notable exposure to the alternative-A credit market as well as lesser exposure to jumbo and agency risk.)
