dChan - Q Origins Project Archive

The latest round of global capital rules, known as Basel III endgame, is expected to make a whole slew of loans more expensive for banks to hang onto. In response, the lenders are bundling more auto loans, equipment leases, and other kinds of debt into asset-backed securities.

In the US alone, ABS sales have topped $170 billion this year, up about 38% from this time in 2023, according to data compiled by Bloomberg News. Europe has seen similar gains: issuance was about €21 billion ($22.9 billion) this year, up about 35% from the same point last year, according to data compiled by Bloomberg that excludes mortgage securities. And the tide of issuance doesn’t seem to be ebbing. Bank of America strategists on May 31 raised their full-year US sales predictions for the bonds, to about $310 billion from their previous $270 billion, mainly because of auto loan securitizations. The bonds are finding ready buyers among credit investors, with attendees at a global ABS conference in Barcelona this week expressing cautious optimism about the market.

“We see attractive opportunities in asset-backed securities,” particularly those linked to US households, said Kay Herr, JPMorgan Asset Management’s chief investment officer for US fixed income, in the Credit Edge podcast. “We absolutely see opportunities for yield pickup there.”

Banks’ use of significant risk transfers, which are a cousin of ABS, is also driving issuance, running at its hottest pace since the 2008 financial crisis crushed the market.

“A lot of the SRT deals have been in the US up to now,” Andrew South, head of structured finance research at S&P Ratings, said at a conference this week. “With a lot of regulatory changes on the Basel 3.1 side, there could be more incentives for banks to use securitization for capital relief,” he added.

One sign of the robust demand is that investors looking for securities with relatively strong ratings and high yields have snatched up asset-backeds supported by increasingly exotic assets, including art from Rembrandt van Rijn and Andy Warhol, and internet protocol addresses.

We are getting a lot of enquiries about esoteric securitizations,” said South, citing data center and solar panel securitizations as two examples. To be sure, issuers could be pulling their sales forward to avoid any volatility from the US presidential election or a Federal Reserve monetary policy pivot, according to strategists. That dynamic could result in a much slower second half of the year.(yeah no they will keep bundling shit together and selling it as long as other managers are stupid enough to buy it)

Wall Street chief executives have been vocal in their complaints about the Basel III endgame rules. JPMorgan Chase & Co.’s Jamie Dimon said hedge funds and other firms outside the banking system were excited for the business they would gain from the regulations.

“They’re dancing in the streets,” Dimon said last year.

Regulators seem to be listening. In March, Federal Reserve Chair Jerome Powell said the central bank was planning “broad and material changes” to the central bank’s implementation of the rules, and that a complete overhaul was possible.(please provide ONE example where the FRB was proactively involved in implementing any regulatory enforcement you fuggen putz Jerry)

https://www.bloomberg.com/news/articles/2024-06-08/great-bank-asset-sale-is-a-boon-for-bond-market-credit-weekly

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KYS