Subprime Auto Debt Is Booming Even as Defaults Soar
- Risk premiums shrink on auto loan bonds as loss rates rise
- Eisman of ‘Big Short’ fame and Morgan Stanley flagged concern
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A boom in sales, a pickup in defaults, and risk premiums keep on dropping.
It’s all happening in the market for subprime auto bonds, where loans to American consumers with some of the patchiest credit histories are packaged into securities to be sold to big investors. A decade after risky mortgage lending toppled the U.S. financial system, the securities have rarely been so popular. But the collateral behind the bonds is getting less safe: car-owners are increasingly falling behind on bigger loans with longer repayment terms made against depreciating assets.