Increased new issue volumes and near record lows in the consumer ABS spreads have led to slightly wider spreads in both the primary and secondary markets, according to two securitization market reports.
Approximately $14 billion of new consumer ABS priced over the previous two weeks, and $30.9 billion has priced since Sept. 1, according to an Oct.15, Wells Fargo report. Another $5 billion is in the pipeline for this week, which drives issuance in consumer ABS to $144.2 billion for year-to-date 2012, which is 59% ahead of last year’s volumes.
According to the Wells Fargo report, consumer ABS spreads have widened by two to 10 basis points over the past four weeks on the back of supply pressure. An Oct. 12, JP Morgan report showed 3-year, triple-A prime auto ABS spreads have widened by 6bp from 10bp to 16bp since Sept. 6.
Supply pressures has likewise created softer spreads for shorter-average triple-A paper in the primary market benchmark sectors, such as prime autos and credit cards. "One prime auto ABS issuer priced its last cash flow triple-A tranche at 20bp over swaps," JP Morgan analysts said in the report. "A comparable bond traded at 11bp in the secondary market. Although there is usually a premium associated with the secondary market, this level is particularly wide."
Analysts noted however that investors looking to enter the market as a short, low-risk alternative to Treasury, agency or corporate bonds, should move on the current spread softening as it's likely that the shortage of comparable triple-A assets, means that high quality triple-A ABS will grind tighter in the long run.
"We believe that investors should respond opportunistically to any seasonal spread widening in consumer ABS, particularly if credit spreads widen," said analysts in the Wells Fargo report.