Securitization in Focus — May 2024
Asset-backed Securities
Auto ABS is on pace for a new annual record. Used vehicle prices have more room to fall but relatively low volume of late model vehicles coming off-lease in 2024-2025 could mitigate some of the decline. Maheim Consulting expects the index to finish down 0.7% in 2024, roughly rangebound through year-end.
YTD issuance ($B)
|
|
2024 YTD |
2023 YTD |
2022 YTD |
Difference
2024 vs 2023 (%) |
| Auto |
86.5 |
64.5 |
58.9 |
+34.1 |
| Student Loan |
4.6 |
3.8 |
4.9 |
+23.8 |
| Credit Card |
9.3 |
6.7 |
13.0 |
+38.8 |
| Equipment |
10.3 |
8.0 |
9.8 |
+29.2 |
| Other |
37.5 |
26.0 |
34.9 |
+44.4 |
|
Total
|
148.2
|
108.8
|
121.5
|
+36.2
|
30+ Day Delinquencies - Prime Auto ABS (%)
30+ Day Delinquencies - Non-Prime Auto ABS (%)
Commercial Mortgage-backed Securities
Delinquency rate by property type (% 30 days or longer)
Issuance ($B)
We see an ongoing recovery from an issuance standpoint in private label or non-agency CMBS, with SASB leading the way. SASB accounts for nearly half of all CMBS (private label and Agency) issuance in 2024 YTD.
CMBS Spreads (bps)
|
|
Current Spreads |
| |
New Issue
SASB |
New Issue
Conduit |
Secondary
Conduit |
| AAA
|
145-170 |
108 |
109 |
| AA- |
170-200 |
185 |
213 |
| A- |
200-250 |
240 |
436 |
| BBB- |
250-325 |
580 |
838 |
| Tightening Since 2023 Peak |
New Issue
SASB |
New Issue
Conduit |
Secondary
Conduit |
| -118 |
-92 |
-61 |
| -165 |
-211 |
-112 |
| -175 |
-281 |
-200 |
| -203 |
-370 |
-284 |
Residential Mortgage-backed Securities
Non-Agency RMBS
Issuance ($49B YTD) is on pace to surpass 2023 full year issuance ($68B) while trailing 2022 ($140B) issuance levels.
Issuance ($B)
Agency RMBS
National home prices continue to inch higher, +6.5% over the twelve-month time period ending March ’24. Since 2019, home prices are higher by 54% with many major cities below the aforementioned national average but still higher by more than 30%. Higher home prices mean higher level of home equity, roughly $32 trillion, up $12 trillion with home prices increasing by 47% since COVID. But tighter lending standards from financial institutions mean that access to that built up equity has decreased from the peak of $900 billion to just $311 billion today.
And now for something completely different…
Financial innovation continues in the asset-backed securities market as Cogent Communications brought an ABS deal that utilized the revenue tied to IPv4 addresses as collateral. How does this work exactly? The planned sale marks Cogent's first-ever ABS offering, which will pay investors using revenue from leasing its IP addresses to customers. Each IPv4 address is a unique 32-bit internet protocol address represented in hexadecimal format that identifies and allows devices to communicate over the internet. IPv4 was developed in 1981 with approximately 4.3 billion unique IPv4 addresses in existence and remains the most widely used Internet protocol. The issuer leases its contributed IP addresses to netcentric, corporate and enterprise customers. The issuer’s corporate customers are typically small-to-medium sized businesses.
In other ABS news, auction house Sotheby’s issued a new ABS deal backed by personal loans made to art collectors. Sotheby’s enables clients to access the liquidity in their fine art and collectible assets. The company will lend against works of art or collectible items that Sotheby’s would offer for sale at auction or a private sale, covering assets that range from fine art to jewelry and watches to wine and spirits.
Sources: Deutsche Bank, Trepp, JPMorgan.
Investment Grade is a bond quality rating of AAA, AA, A or BBB.
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The views expressed are those of Diamond Hill as of June 2024 and are subject to change without notice. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.