ABS sector spreads have steadily tightened over the past year, according JPMorgan Securities' most recent weekly. This tightening has been caused by both by improving credit and negative net supply.
In that period, analysts added that most ABS asset classes have traded in an exceptionally narrow spread range. This shows the "remarkable" stability in spreads that has returned to the sector after the financial crisis.
For instance, benchmark three-year cards traded with a six-basis-point range, while three-year autos have a 14-basis-point range, they said.
In the past year, a comparable spread range for one- to thee-year financials was 165 basis points, JPMorgan analysts said.
Additionally, by contrast, short-duration industrials had a 55-basis-point range.
In terms of ABS, the only 'AAA' sector that had that type of spread volatility has been private SLABS at 65 basis points, analysts pointed out.
Additionally, going down in credit, spread volatility has been lower or at least comparable to that seen in the corporate sector, they added.
Considering current spreads, it will be hard for ABS to tighten considerably further, although it will continue to deliver a stable spread alternative to short-duration corporates, analysts stated.. They anticipate demand to stay strong.
Analysts still suggest for investors to look into U.K. RMBS, subprime auto, retail cards, and subordinate benchmark ABS for spread pickup.