Subprime Auto Bonds Hit by Skipped Payments, Falling Used-Car Values
- Wholesale used car prices are falling, hitting bond collateral
- Some investors bet the bonds can absorb losses and still pay
A parking lot holds used cars and trucks in Gaithersburg, Maryland.
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Subprime auto loan borrowers are increasingly falling behind on payments, and the value of used cars is dropping, two trends that are clobbering bonds tied to the debt.
Yields on some of the riskiest such bonds have jumped to about 6.5 percentage points more than Treasuries as of last week, a risk premium that’s widened up about 2 percentage points from the end of September, according to data compiled by JPMorgan Chase & Co. Excluding a few weeks during the pandemic, current levels are the widest since 2010.