While spreads have held tight in nearly all asset-backed sectors during November's onslaught of issuance, autos have shown some spread volatility, slipping out as much as seven basis points over swaps, according to a recent research report by PaineWebber.
PaineWebber views this as a good buying opportunity.
"If you take a look at the short part of this ABS market over the last three or four months, autos and cards have traded very close versus the swap market," said Tom Zimmerman, head of ABS research at PaineWebber, and author of the report.
Back in the summer, Zimmerman made the case that autos, which have traditionally traded a few points over credit card ABS, were emerging as a benchmark sector for short-term paper and might continue trading in line with cards.
Most of that was attributable to the frequent large, liquid deals from Ford and other issuers this summer, a somewhat new phenomenon for the ABS market, Zimmerman said.
"Given our view, that there's a new shape to the auto market out there; we think [the current widening] is a short-term, technical kind of a situation that will disappear," Zimmerman said. "I think this differential will probably come back in again."
Case in point: GMAC's auto deal, which priced inside of talk, was hailed as the deal of the week.
There was $23.4 billion in issuance in the public market in November, and $7.6 billion, or 32.4%, of that was attributable to auto issuance, according to Thomson Financial Securities Data.
As a recurring theme over the past two or three months, the widening in auto ABS, which is not due to increased supply, is caused by factors such as headline risk and the effect of a weakening economy on profitability of auto makers - neither of which should, theoretically, impact credit in auto asset-backed securities.
As previously reported in ASR, events in the auto industry, such as the corporate downgrade of DaimlerChrysler, will likely continue to push auto makers into the asset-backed market for funding.
So far this year, the auto sector has seen $55 billion in loan and lease-backed deals, up nearly $16 billion from this point in 1999, according to TFSD.
DaimlerChrysler filed with the Securities & Exchange Commission last week to issue up to $2 billion from its Carco Trust.