Asset-backed debt sales may halve in '08: Lehman

Sales of securities backed by assets, including mortgages, may shrink by as much as 50 per cent in Europe next year because the yields investors demand to buy the debt are too high, according to Lehman Brothers Holdings.

Banks sold $680 billion of asset-backed bonds last year, more than half secured on European home loans, according to Lehman Brothers.

Investors are demanding higher yields because of losses on securities linked to US subprime mortgages. Yield premiums on AAA-rated portions of UK mortgage-backed notes have soared from about 10 basis points to 45 basis points more than benchmark rates, Lehman Brothers said.

"The cost of funds is really killing the economics of securitisation," Aleksandar Devic, a London-based analyst at Lehman Brothers, said today in a telephone interview.

"We'd need to see senior AAA bonds trading below 40 basis points for it to make sense for issuers to come to market.''

European banks finance less than 30 per cent of their home loans by selling mortgage-backed securities, Lehman Brothers said in the September 28 report.