Subprime trading like it’s ’07 in car-loan bonds, according to Bloomberg.
In response to rising default rates on subprime U.S. auto loans, bond investors are deciding the best thing to do is pile into securities backed by the debt.
In the market where auto loans to people with spotty credit are bundled into bonds, the difference in yield between the lowest-rated securities and the safest has narrowed to the least since August 2007, according to Wells Fargo & Co. data. Demand for the bonds is translating into cheap funding for lenders, allowing them to make even more loans though payments more than 60 days late are on the increase.
Investors are turning to riskier debt to boost returns as stimulus measures from central banks around the world suppress interest rates. The European Central Bank last week became the first to take one of its main rates below zero, underscoring the lengths to which policy makers are willing to go to jumpstart growth more than five years after the worst financial crisis since the Great Depression.