Sales of risky pools of securities backed by car loans are accelerating at the start of 2014 as investors snatch up the higher-yielding bonds that were popular in the build-up to the financial crisis.
This week alone, about $2bn in deals that bundle car loans made to subprime borrowers have hit the US debt capital markets, following a 20 per cent jump last year to $21.5bn. Demand for the securities is forecast to increase further in 2014, helping push sales to the $25bn mark, according to Deutsche Bank estimates.
The rise in deals backed by subprime auto loans comes as benchmark interest rates remain near historic lows. In addition, expectations for an increase in economic activity and higher consumer spending in the coming months has encouraged a growing number of investors to buy assets tied to lower credit loans.
“Until recently, bond deals with the word ‘subprime’ attached to them were seen as radioactive: Almost no one wanted to get near them,” said Adrian Miller, director for fixed-income research at GMP Securities.