A new bubble in subprime
Credit-ratings agency Fitch says that delinquencies in US car loans have hit a 20-year high – 5.2% of borrowers are over 60 days late.
Car sales have hit record levels in America, helped by record lending, says Serena Ng in The Wall Street Journal. The total volume of American car loans has hit a new peak around $1trn. And where there's record lending, as we learnt in 2007, there is often careless lending.
As with subprime mortgages, car loans are often bundled and sliced and diced into new securities. "Bonds backed by auto loans made to riskier borrowers [have] proved to be a sweet spot for yield-seeking investors" in today's low-rate environment, says Bloomberg.com's Tracy Alloway.
But it now seems "the chickens [are] coming home to roost". Credit-ratings agency Fitch says that delinquencies have hit a 20-year high; 5.2% of borrowers are over 60 days late.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Analysts have dismissed fears of a subprime car loans bubble bursting because the economy is strong but then subprime mortgages started to weaken before growth turned down.
Subprime car-loan-backed bonds are only worth $27bn in total, and may not pose a systemic threat, but the sector has produced a nasty blast from the past.
-
FTSE 100 hits record highs – why is it rising and will we see more gains?
Advice UK equities have been described as unloved for a long time but as the FTSE 100 hits new highs, we explain if now is the time to buy British.
By Marc Shoffman Published
-
How to invest in copper
It may be time to invest in copper as the red metal appears poised for a big jump. Dominic Frisby looks at what should investors should buy
By Dominic Frisby Published