European and UK ABS defy volatility with strong Q1 issuance, resilient demand and varied manager positioning strategies

Despite growing geopolitical tensions, rate uncertainties and a spike in volatility toward the end of March, European and UK ABS have proven resilient, and in some areas, remarkably buoyant, according to monthly European and UK factsheets monitored by SCI.

TwentyFour AM Momentum Bond Fund’s managers report €11bn of issuance across ABS sectors during March, highlighting “a significant uptick” in consumer and auto transactions from established platforms. Demand remained robust, with AAA tranches seeing 2-3x coverage, which allowed for 5-10bps of tightening. They welcomed a CMBS deal, though they note that investor sensitivity to collateral quality kept spreads at the wider end.

Amundi also flags high levels of issuance, estimating around €6bn in public ABS issuance in March and €20bn YTD, making it a record-setting first quarter. Demand remained “very strong” for senior tranches, with mezzanine appetite hitting levels “last seen in 2021.”

Aegon’s portfolio managers corroborate this, noting that “European ABS showed a positive performance in March” despite spread volatility. They point out that primary supply was strong, with consumer ABS seeing tighter spreads in lower-rated tranches, while seniors held steady.

All three managers also point to similar macro risks: US trade tensions, geopolitical instability, including the Middle East, and diverging central bank policies. Yet their interpretation of these risks varies.

TwentyFour sees continued strong consumer fundamentals but flags potential headwinds from inflationary pressures and tighter consumer conditions. Aegon takes a more detailed view, suggesting that while parts of the market show arrears, overall credit performance has held up better than expected, supported by structural features like excess spread and reserve funds.

On the other hand, Amundi believes investor sentiment in ABS remains resilient and they have not observed any forced selling in the secondary market, which contrasts with the CLO space.

Divergence: relative value and portfolio shifts

While all three managers agree that ABS fundamentals remain solid and demand is robust, particularly for senior paper, their strategic responses differ.

In March, TwentyFour held relatively liquid positions and rotated from shorter-dated consumer ABS into new primary deals offering a 10bps pickup. TwentyFour AM Momentum Bond Fund’s managers maintained a cautious stance amid trade and geopolitical risks and expressed a clear preference for established lenders with strong collateral performance. Australian ABS, particularly AAA auto paper, is also cited as attractive on a currency-adjusted basis.

Aegon, on the other hand, disclosed a slight reduction in their ABS allocation in favour of CLOs and RMBS, with a tilt toward senior paper amid mezzanine compression. The firm strategy appeared more yield- and carry-driven: the current yield on their European ABS portfolio reached 3.7% (6.0% in GBP), slightly above the yield-to-maturity. Aegon’s managers March positioning reflects concern about limited upside in spreads and potential downside risks due to persistent macro uncertainties.

Meanwhile, Amundi continued to selectively participate in both primary and secondary ABS markets. While they remained active in senior tranches, they expressed caution around mezzanine tranches, noting that spreads were “particularly tight on a historical basis.” Their positioning seemed to balance opportunistic buying with a more defensive stance, particularly given the uncertainties around US tariffs and German fiscal policy.

Fund specifics:

Amundi ABS returned +0.04% in March 2025. YTD: 0.88%
Fund size: €1.13bn. ABS/MBS allocation: 100.35%

Aegon European ABS Fund returned +0.01% in March 2025. YTD: 0.92%
Fund size: €7.72bn ABS/MBS allocation: 72.8%

TwentyFour AM Monument Fund returned +0.29% in March 2025. YTD: 1.48%
Fund size: £1.89bn. ABS/MBS allocation: 57.22%

Janus Henderson ABS Fund returned +0.36% in March 2025. YTD: 1.43%
Fund size: £514.7m. ABS/MBS allocation: 54.82%

Matthew Manders