Wednesday, 19 December 2018

US ABS sees biggest month since crisis: JP Morgan

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US asset-backed bond issuance has reached US$29bn for October, the biggest monthly tally seen since the financial crisis, JP Morgan strategists said in a note.

That fast pace has led them to raise their forecast for full-year issuance. JP Morgan now expects volume for the year to reach US$210-$215bn from about US$194bn now.

The bank’s original forecast was for US$200bn.

“On the investor side, tight spreads and low yields have led some to consider adding leverage to enhance returns,” the strategists said in the note published Friday.

“Unsecured consumer loan ABS has emerged as an asset class that can be levered, but liquidity is more limited and pricing widely dispersed,” they said.

After around US$7.3bn of supply last week - boosted by the biggest ABS deal of the year, a US$3.177bn trade from credit card giant American Express - the pace is expected to slow this week in primary.

Tesla Energy announced a deal Monday, and Sallie Mae Bank is also looking to sell a new student loan issue.

But there were a raft of filings late Friday - including one for Caribbean Financial Group, a debut consumer loan deal that struggled to get off the ground in September - which points to heavier issuance next week.

Other primary markets are also on track for elevated supply, with the US high-grade corporate bond market set to set the mark for the biggest October of issuance later on Monday, according to IFR data.

Just US$300m is needed to break it, which will be easily done with at least six high-grade issuers expected to price deals Monday, including Citizens Bank and Ford Motor Credit.

Corporate bond spreads are lingering around post financial crisis lows despite heavy supply.

Double A rated corporate bond spreads hit a new post-crisis low of just 58bp over US Treasuries on Friday, according to Bank of America Merrill Lynch data.


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