A shrinking credit card asset-backed securities market could pull liquidity from the broader ABS sector, according to panelists at the Consumer ABS Traders and Researchers Roundtable on Tuesday.
“The credit card sector in particular has really been one of the engines of ABS liquidity,” said John McElravey, director and head of consumer ABS research at Wells Fargo Securities. “Typically a new investor would enter the market and the first thing they would buy is a credit card bond, then after they got comfortable with that, they would go on to autos or equipment or rate reduction bonds. We’re seeing a withdrawal of liquidity as [that sector] shrinks.”
On the bright, side, panelists agreed that spreads on consumer ABS in the secondary market would be more stable in the event of another major market event. “The structure and the credit [of the asset class] proved themselves though the cycle,” McElravey said. “I wouldn’t expect the same sort of very wide swings in spreads that we had before.”
That is, unless structured finance is the cause of a credit crunch, added John Di Paolo, principal at Prudential Fixed Income. “If the contagion comes from the structured marketplace, then you could certainly see all the structured asset classes trade off. If one asset class goes bad, people are [likely] to look at structured product and say, “That technology might not work.”