Wells Fargo Securities analysts said today that the low interest rate environment might pose challenges for certain consumer ABS sectors, particularly as spreads further tighten.

They said that the yield curve will probably remain comparatively flat given analysts' outlook for monetary policy in the next several months. 

With this outlook in terms of the yield curve and interest rates, the best relative value opportunities in fixed-rate consumer ABS are in auto ABS subordinated bonds as well as other nonbenchmark sectors that provide incremental yield, Wells Fargo analysts recommended.

In terms of the floating-rate side, FFELP student loan ABS provide good relative value for the credit risk taken, analysts stated.

"A robust recovery took hold in consumer ABS during 1Q12, " analysts wrote, citing new-issue volume of $40 billion.

The 65% increase from a year ago proves that consumer ABS has gotten back some of their previously lost vigor.

The low interest rates and tighter spreads have made ABS more attractive for issuers in recent weeks. But, the implementation of more regulation can slow the market’s pace, analysts said.

The recent spread trends have shown the significant demand for many consumer ABS transactions, they said. They added  that most sectors have seen double-digit tightening in the past 12 weeks.


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