'I don't think there's an appreciation for just how cheap a lot of the bonds are out there,' says John Kerschner, head of U.S. securitized products at Janus...
Big bargains have made a roaring comeback on bonds tied to the $16.2 trillion pile of U.S. consumer debt.
Higher borrowing costs, tighter credit conditions and sharp losses have been defining forces on Wall Street this year as the Federal Reserve has increased interest rates quickly to fight inflation stuck near 8%. Carnage in numbers When consumers take out a car loan, tap their credit card or receive a home loan, pricing often hinges on conditions in the so-called “securitization market,” where Wall Street for decades has been packaging up household and corporate debt to sell as bond deals.
DoubleLine CEO Jeffrey Gundlach touted similar yields in asset-backed securities and other parts of credit markets hit hard this year, despite rising recession risks, in a CNBC interview.Specifically, three-year BBB rated auto bonds, the lowest investment-grade bracket, were pegged at a spread of 410 basis points above the risk-free benchmark in October , up from a one-year low of 96 basis points, according to Deutsche Bank research.
Spreads still risk heading wider, according to BofA Global research, given “persistently high inflation, a hawkish Fed and a weaker economic outlook.” “Something is bound to break when you do that,” said David Petrosinelli, managing director, sales and trading at InspereX, a broker-dealer, while pointing to yields in parts of the securitization market at their highest in a decade or more.It already has been a year of historical losses in bonds and painful losses in equities, as Wall Street has been forced to reprice assets as the 10-year Treasury yield has climbed quickly above 4% mark, from a December low of 1.34%.
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