From Research Recap:
In a new survey of US credit card Asset-Backed Security collateral performance, CreditSights finds and that pool performance has deteriorated significantly over the course of the last eight months. “Despite that deterioration, however, credit card ABS collateral delinquencies are still well within the normal historical range, and the ratings on credit card ABS senior tranches appear to be safe for now.”
While issuance and excess spread levels do help to offset concerns about rising delinquencies, we find some worrying evidence that delinquencies are rising more rapidly than what might have been historically normal given recent trends in unemployment.
“We would grant that the most recent unemployment data have been surprisingly low, so in the coming months we may simply see unemployment rise, validating the recent steep rise in delinquencies. But if something else is going on, especially if there has been some structural change in the behaviour of credit card borrowers that has made them more likely to default than they historically would have been given current economic conditions, then credit card ABS bondholders may have a more bumpy ride ahead than they might have expected.”
Stripping out master trusts which did not exist in 2001, CreditSights finds that most master trusts are approaching their mid-2001 delinquency levels, and one (the MBNA/BofA trust) is now well above that mid-01 level. Only the Discover master trust is still enjoying delinquency rates well below its 2001 levels.
“Combining all six of the older credit card ABS master trusts’ delinquency rates into a simple average of the six, we find that average delinquency rates have jumped sharply over the last eight months, from an index reading of just under 70 (where the delinquency rate index stood at 100 as of May 2001) to a reading of 89.5 today. While that leaves average delinquency rates below their mid-2001 levels, and still well below the record index reading high of 114 in Early 2002, the increase since July 2007 has still been severe. It took 21 months - from April 2004 to January 2006 - to get this index level from just over 90 to just under 70. It has taken only eight months, however, for the index to jump from just under 70 back to around 90.”