The Threat of Waning Demand for Auto ABS
Auto-backed securitizations have fared well since TALF reinvigorated the market in 2009. Steady performance and solid returns attracted investors to the auto ABS space, propping up volume and tightening spreads.
But “exotic” asset backed securities ― like those backed by timber harvests, timeshare revenue, and cellphone-tower leases ― may lure some of those investors away from the auto sector, The Wall Street Journal reports today.
“Off-the-run issues are generally smaller and more complicated to structure than the more mainstream bonds,” according to the WSJ. “Yet yields are in the 5% to 6% range, higher than the 3% yields found in the auto and student-loan sectors.”
Take a look at these numbers: At its peak, the ABS market totaled about $700 billion. Issuance dwindled to $135 billion in 2010, and will likely stay in that range for 2011.
So far this year, auto ABS volume is at $16 billion. Might the decline in investor interest prompt auto financiers to search elsewhere for funding? Or should lenders just prepare for wider spreads, much like they’re planning for lower used-car prices?
