Banks are offloading assets by turning to the booming bond market. The latest global capital rules, Basel III endgame, are making it more expensive for banks to keep certain loans. In response, lenders are packaging auto loans, equipment leases, and other debts into asset-backed securities (ABS).
In the US, ABS sales have surpassed $170 billion this year, up 38% from last year. Europe has also seen a 35% increase, with issuance reaching €21 billion ($22.9 billion). Bank of America strategists have raised their full-year US sales forecast for ABS to $310 billion due to strong demand, particularly for auto loan securitizations.
Investors are showing interest in ABS with strong ratings and high yields, even for securities backed by unconventional assets like art and internet protocol addresses. Banks are also utilizing significant risk transfers, a form of ABS, at the fastest pace since the 2008 financial crisis.
The strong demand for ABS may be a preemptive move by issuers to avoid volatility from the US presidential election or shifts in Federal Reserve policy. Despite concerns about Basel III endgame rules, banks are preparing for tougher capital requirements by increasing ABS issuance.
In other news, private credit markets are facing challenges due to higher interest rates, while Asian borrowers are returning to global debt markets in record numbers. Banks are also investing in shorter-term mortgage bond securities, and companies like Deutsche Bank and Planet Fitness are issuing bonds for refinancing and expansion.
Overall, the bond market is active with various deals and investments taking place across different sectors. The European Central Bank is monitoring bank lending to the private equity industry, while financial institutions are making key hires to strengthen their fixed-income and private credit businesses.