Asset-Backed Debt Sales Reach Record High in First Half of 2024

According to a recent article from The Edge Malaysia, asset-backed debt sales reached a record high of $175 billion in the first half of 2024, making it the busiest half of issuance for the sector in at least six years. Asset-backed securitization deals, where loans are packaged and sold in bond-like instruments, have grown in popularity as banks seek to offload risk and refinance loans. The high yields offered by ABS deals in exchange for debt secured against a wide pool of assets have contributed to their appeal. The uptick in issuance this year is attributed to a general rally across credit and the prospect of rate cuts in the second half of 2024. However, the outlook for the second half may not be as positive due to volatility around the US elections and the uncertain trajectory of interest rates [fd2b15be].

Investors are engaged in a battle for allocations in ABS mezzanine tranches as they bump against senior tranches, according to a recent article from GlobalCapital. The tightening of double-A tranches may be limited, but there is potential for further compression further down the capital stack. The article highlights the challenges faced by investors in securing allocations and discusses the potential for consolidation in the servicer market. It also mentions recent developments in the securitization industry, such as Funding Circle strengthening its partnership with Barclays and Lloyds treasury vet Peter Green moving into capital markets [49aeb54b].

The article from Wealth Briefing highlights a preference for investment-grade debt and a cautious approach to equities, as well as a slowdown in the move towards private market assets. The impact of higher interest rates on this trend is also noted. The US Federal Reserve's less aggressive stance on rates is seen as a positive sign for the US economy. Technology stocks have been leading the market rally, driven by strong growth prospects and fundamental strength. However, the article advises caution in treating tech stocks as a homogenous group and emphasizes the importance of diversification. It also highlights healthy corporate profits and signs of broad demand for equities, suggesting a sustainable bull market. Overall, these factors create a favorable backdrop for multi-asset investors in 2024 [28ef966a].

According to a recent survey conducted by Bank of America, investors are expressing growing confidence in the global economy, with a majority predicting a 'soft' or 'no' landing for the next 12 months. The survey, which polled 225 investors, found that 74% of respondents expect a positive outcome, marking a decrease in the proportion of investors expecting a 'hard' landing. Cash levels have also dropped, and investors are now overweight equities for the first time since April 2022. However, despite the overall optimism, investor sentiment remains bearish, with many waiting for data to confirm cooling economic conditions. The survey also revealed that 76% of respondents believe that the US Federal Reserve has finished its cycle of interest rate increases. While the base case for investors is a soft landing next year, fund managers are urging corporate executives to prioritize improving their balance sheets over boosting capital spending or returning cash to shareholders [1c9788f5].

In another survey conducted by the Bank of America and BofA Global Research, bond investors are expressing their concerns and expectations regarding the US economy and bond market. The survey reveals that 52% of credit investors are preparing for a mild recession in the US economy, while 31% expect a soft landing with slower but positive growth and lower inflation. The adjustments made by investors in the bond market include a decrease in longer-dated debt and a shift towards debt maturing between five and 10 years for investment-grade investors, and debt maturing in one to three years for high-yield investors. Additionally, more than half of investment-grade investors expect bonds rated BBB to deliver the highest risk-adjusted returns over the next 12 months. Junk bond investors are also allocating more money to investment-grade bonds due to attractive yields and recession concerns. Both high-grade and junk bond investors are underweight in debt issued by companies in the industrial and telecom sectors, but overweight in issuers in the energy sector. These surveys collectively reflect the sentiment and expectations of bond investors, highlighting their concerns about a potential recession, adjustments in bond market positioning, and the conviction in lower yields and interest rates. The common theme across these surveys is the cautious approach of bond investors and their assessment of the economic landscape and bond market conditions [08d2905b].

Despite a slide in performance, investors in asset-backed securities (ABS) remain optimistic about consumer ABS. ABS investors believe that the decline in performance is temporary and expect a rebound in the future. The COVID-19 pandemic has impacted consumer ABS, particularly in sectors such as auto loans and credit cards. However, investors are confident that as the economy recovers, consumer ABS will regain strength. They view the current situation as an opportunity to invest in ABS at attractive prices. While there are concerns about potential delinquencies and defaults, ABS investors are closely monitoring the performance of underlying assets and implementing risk mitigation strategies. Overall, ABS investors maintain a constructive outlook on consumer ABS despite the current challenges [97d2113f].