Auto ABS deals head for finish line
The auto asset-backed securities (ABS) market is heading towards the finish line, with a flurry of new deals being issued in recent months. This is good news for investors looking to diversify their portfolios and gain exposure to the auto industry.
Auto ABS deals are essentially securities backed by pools of car loans or leases, which are then packaged and sold to investors. These deals are often structured into different tranches, with varying degrees of risk and return.
One of the main drivers of the recent surge in auto ABS deals has been the strong demand for cars in the wake of the pandemic. With interest rates at historic lows, consumers have been flocking to dealerships to take advantage of low financing rates and incentives.
This has led to a sharp increase in the number of car loans being originated, which in turn has fueled the growth of the auto ABS market. According to data from Bloomberg, the volume of new auto ABS deals has already surpassed $50 billion this year, and is on track to surpass last year's total of $78 billion.
Another factor driving the market is the growing popularity of electric vehicles (EVs). As more consumers look to buy EVs, lenders are increasingly offering financing options for these vehicles, which are often more expensive than traditional cars.
This has led to the creation of new types of auto ABS deals, specifically tailored to the EV market. These deals often offer higher yields than traditional auto ABS, reflecting the higher risk associated with financing EVs.
Overall, the outlook for the auto ABS market remains positive, with strong demand for cars and growing interest in EVs driving new deal activity. However, investors should still exercise caution and carefully evaluate the underlying loans in any auto ABS deal before investing. As with any investment, there are risks associated with the auto ABS market, including the potential for defaults and fluctuations in interest rates.