But while total issuance trends are upward, individual asset categories are subject to volatility in the volume of new issues, Moody's said. Agency analyst Michael Cie cited the example of home equity issuance increasing by 56% in 2001 due to low interest rates, while collateralised debt obligation (CDO) issuance simultaneously dropped by 32% due to the poor performance of underlying corporate bonds.
Moody’s said the evolution of the market has been spurred by the issuance in esoteric asset types. CDO issuance has grown significantly, with CDOs making up 16% of issuance between 1996 and 2002.
The market’s evolution has also been hallmarked by a reduction in external credit support - 67% of ABS deals used external enhancement mechanisms in the 1980s, versus 30% in the 1996-2002 period. Internal supports including subordination, over-collateralisation and excess spreads have become the credit enhancement mechanisms of choice.