Fitch Ratings predicts that the factors that have contributed to more securitizations of subprime auto loans will remain in place.
The fuel for growing issuance is coming from strong auto sales. Fitch expects Americans will buy between 13.5 million and 14.5 million vehicles in 2012, a turnaround from the depressed sales in 2009 and 2010. Auto loans are likewise increasing.
The agency said that investors have been streaming into this asset class for its high spreads and short durations. Two-year triple-A-rated subprime auto ABS is yielding 85 basis points, compared with 25 basis points for comparable treasurys.
Performance in the sector has been strong as well, Fitch said. The agency’s subprime annualized net loss index posted 4.74% in July, well below the 13.14% peak reached in February 2009.
In contrast, U.S. prime auto loan ABS saw its performance erode in July, according to a separate release from Fitch. Prime annualized net losses rose to 0.33% from 0.14% in June. The figure, however, represents an increase from what was a historical low in June.
“The reversal in performance trends is not surprising as Fitch expects losses to continue following seasonal patterns and rise through the fall,” the agency said.