Securitization in Focus — June 2024
Asset-backed Securities
Auto ABS issuance is on pace for a new annual record with year-to-date issuance eclipsing $180 billion.
YTD issuance ($B)
|
|
2022 YTD |
2023 YTD |
2024 YTD |
Difference
2024 vs 2023 (%) |
| Auto |
68.6 |
74.8 |
101.3 |
+35.5 |
| Student Loan |
5.2 |
3.8 |
6.5 |
+73.0 |
| Credit Card |
16.5 |
10.4 |
11.6 |
+10.9 |
| Equipment |
11.1 |
10.6 |
16.0 |
+51.1 |
| Other |
40.9 |
29.8 |
45.4 |
+52.5 |
|
Total
|
142.3
|
129.3
|
180.8
|
+39.8
|
ABS Delinquencies (%)
ABS performance varied significantly in June. The subprime auto sector saw a double-digit increase in delinquencies, while traditional and marketplace loans had delinquency rates of around 5%. Bank cards and prime auto loans performed the best, maintaining delinquency rates below 2% for the month.
Commercial Mortgage-backed Securities
The CMBS sector has shown strong performance year-to-date, largely driven by the successes achieved in the first quarter.
ICE BofA 7-10Y Indexes
Source: Bloomberg.
Private label or non-agency CMBS issuance is steadily recovering, with single-asset single-borrower (SASB) deals at the forefront. In 2024 year-to-date, SASB transactions have made up nearly half of all CMBS issuances, including both private label and agency-backed.
CMBS Issuance ($B)
In June, the Trepp CMBS overall delinquency rate climbed back above 5.0%, increasing by approximately 38 basis points month-over-month. This marks the fourth uptick in the last six months. Historically, the all-time high was recorded in July 2012 at 10.34%, with a COVID-19 peak in June 2020 at 10.32%. Compared to the same period last year, the delinquency rate has risen by 1.45%.
CMBS Delinquencies (%)
Residential Mortgage-backed Securities
Number of years to save for 20% downpayment*
Source: Census Bureau, Zillow.
*based on 10% annual savings rate of median income level
Home affordability is at its lowest in decades, having increased by 48% since the onset of COVID-19. Currently, the income of first-time homebuyers covers only about 68% of the monthly payments needed for a median-priced home.
Non-Agency RMBS
Issuance ($B)
And now for something completely different…
Esoteric ABS has a rich history, encompassing a diverse range of assets such as music and pharmaceutical royalties, franchise restaurant fees, and shipping and rail leasing. While agriculture-based ABS deals have been executed before, a recent private transaction marked a groundbreaking innovation by using cattle as collateral to finance a French agricultural cooperative.
Economic pressures have forced French dairy farms to adopt creative financing strategies, particularly since over 25% of these farms closed between 2010 and 2020. Traditional methods like mortgages on land and leases for agricultural equipment have already utilized many farm assets, prompting the need for new collateral solutions.
Sources: Deutsche Bank, Barclays, Trepp, National Association of Realtors.
Investment Grade is a bond quality rating of AAA, AA, A or BBB.
See diamond-hill.com/disclosures for a full copy of the disclaimer.
The views expressed are those of Diamond Hill as of July 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.