In emailed research today, Standard & Poor's analysts said that year-to-date auto sales through April increased 10.3% from the same period last year.
According to analysts, this might mean continued elevated auto ABS issuance based on their estimates.
S&P stated that the auto sector is actually growing faster compared to the overall economy. Auto sales are also rising as a result of pent-up demand, economic growth, and easier access to credit following a slow 2009-2010, they reported
Sales are expected to reach 14.3 million units this year, which is the best full-year number since 2007, S&P analysts said, citing data from Bloomberg.
In a recent report, Wells Fargo analysts said that the auto ABS sector remains "quite healthy." Higher vehicle sales are offering a sufficient source of collateral and strong credit performance is also translating into ratings upgrades, analysts noted.
Additionally, a robust used-car market is helping to lessen loss severity and also boosting subprime issuance.
According to Wells Fargo analysts, these favorable market dynamics help make auto ABS an attractive product for buyers considering the diminishing supply from other ABS sectors.
Robust investor demand has tightened primary market spreads considerably, which provides attractive pricing levels for both returning and first-time issuers, analysts stated. The secondary markets have also seen considerable tightening particularly during weeks of quiet new issuance.
Analysts still view auto ABS as providing good relative value based on market liquidity, strong credit performance, robust structural protections and strong ratings performance.
They recommended seasoned subordinate bonds from deleveraged auto ABS that have built up credit enhancement. These securities allow buyers to pick up incremental yield versus enhanced new-issue securities, analysts said. They also have a high likelihood of ratings upgrade.