Despite fears elsewhere, panellists denied a bubble was forming, particularly in subprime auto. The recent tumble in energy prices is to thank — subprime consumers, who pay a high portion of their income on energy, have more cash with which to service their auto loans and spend on other goods and services that can be securitized.
That left Theresa O'Neill of Bank of America Merrill Lynch confident that spreads in consumer ABS would tighten from the wides at which they began the year, as investors scramble for yield.
With panellists predicting rate rises in the US much later in 2015, consumer ABS issuers have a clear run at investors until they can earn similar returns in better rated, lower spread asset classes when rates do go up.
Asked to pick their choice sectors for performance, O'Neill plumped for securitizations linked to traditional businesses over those with less of a track record like marketplace lending or renewable energy. But Dennis Lee, a director in the US securitization research group at Barclays defended the latter classes, saying there was still little supply for investors to compete for.
Mary Kane, a managing director at Citi, said that with the yield curve set to bear flatten, short dated amortising deals such as subordinate prime auto ABS would perform.
Meanwhile, increased disclosure requirements pose no threat to supply in the public market for consumer ABS, said Lee. Issuers need to swallow the new regulations as the alternative — selling to institutional buyers — is not possible, because there are not enough of them to support the weight of issuance.