KBRA Releases its ABS 2018 Outlook: Sustained Optimism

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Kroll Bond Rating Agency (KBRA) has released its 2018 ABS Outlook. The report makes the following key points:

The major themes in the ABS market over the past year have been strong investor demand, stable credit fundamentals, and a flattening yield curve, all of which contributed to the second consecutive year of solid returns. Across all asset classes and up and down the credit curve, ABS spreads have been stable or grinding trending tighter since early 2016 as demand far outpaced supply and investors continue their hunt for yield further down the capital stack and into the more esoteric corners of the market.

We anticipate more of the same in 2018, as technicals should remain supportive. Investor demand shows no signs of abatement, ABS credit fundamentals appear sound, and as all-in yields march higher with each Fed rate hike, we think ABS spreads have some room to tighten further. However, with spreads already at multi-year tights, there is likely limited potential for further tightening at the higher investment grade level, but there may still be some room to tighten further down the credit curve.

From a credit perspective, ABS risks appear mostly benign. The financial condition of the U.S. consumer is healthy, with household leverage at cyclical lows and household disposable income to debt service payments at an all-time high. With the economy continuing to add jobs at a fairly healthy clip, albeit at a slowing pace as we approach full employment, it’s hard to foresee a derailment of consumer credit over the next twelve months. Meanwhile, a strong consumer and expanding U.S. economy should help bolster further business expansion next year, which will be supportive of commercial ABS sectors, such as whole business, aircraft, and railcar ABS. As such, we believe ABS credit risks are very well contained, for now.

To read the outlook, please click here.

Related Publications: (available at www.kbra.com)

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

More news and information about Kroll Bond Rating Agency

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Business Wire: 18:01 GMT Friday 15th December 2017

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