Bond buyers are demanding higher relative yields on securities linked to subprime buyers even as fixed-income markets snap back from a sell-off that began in May when Federal Reserve Chairman Ben S. Bernanke said the central bank may start reducing record stimulus within months.
Deals tied to auto loans spanning buyers from the weakest to the most creditworthy make up the largest part of the asset-backed market, accounting for about $36.3 billion of $105.8 billion of transactions offered this year, according to data compiled by Deutsche Bank AG.
"We're contending with a lot of uncertainty that is forcing managers to allocate to shorter duration, higher-quality options," Christopher Sullivan, who oversees $2.1 billion as chief investment officer at United Nations Federal Credit Union in New York, wrote in an e-mail. "We may have reached a satiation point for this type of credit," amid concern about rising interest rates, he said.
Bernanke rattled fixed-income markets on May 22 by telling Congress that the Fed may reduce the pace of its $85 billion of monthly bond purchases of Treasuries and mortgage bonds if the economy showed sustainable improvement. Eight weeks later, the Fed chairman calmed bond buyers when he told the House Financial Services Committee on July 17 that the asset purchases "are by no means on a preset course" and that the central bank would respond to economic data.
Companies that make loans to car buyers with bad credit are increasingly tapping the asset-backed market as yield-seeking investors chase riskier assets with the central bank's benchmark interest rate near zero for a fifth year. Ally Financial Inc. (ALLY) sold its first such offering on Jan. 15, Bloomberg data show.
Issuance of asset-backed bonds linked to subprime car loans surged 20 percent to $12.9 billion this year compared with the same period in 2012, according to Deutsche Bank.
GM Financial may sell its $877 million deal as soon as Monday, the person said. About $4.4 billion in bonds tied to everything from auto loans to equipment debt is being marketed this week, people with knowledge of the sales said.