Inflation, slowing growth and rising interest rates often spell trouble for people with car loans and credit-card debt. Wall Street is instead laying more bets that most American borrowers will sail through.
Missed-payment rates on these loans have ticked higher from ultralow levels hit during the pandemic, but they still sit well below the heights reached during past downturns. Over the past few months, the easing of bank stress has helped keep the economy on course, and the recent debt-ceiling deal erased another source of risk.
That has turned investors more bullish on the roughly $300 billion public market for U.S. car- and credit-card debt, known as asset-backed securities. Yields on consumer-backed ABS have declined significantly relative to those on Treasurys so far this year. Alongside strong performances by major stock indexes, the decline signals that Wall Street remains optimistic American households will pull through with minimal distress.
Read the full story on The Wall Street Journal here.