SFA’s Research Corner: U.S. Credit Card ABS Tacking Into Headwinds Stays the Course for Now

SFA’s Research Corner considers credit card ABS which, unlike other asset classes, are tied to the prime rate and are particularly sensitive to the Fed’s rate hikes. Credit card debt is nearing a record $1 trillion, up 15% year-over-year. Younger borrowers are mounting debt at nearly twice that rate and also pushing into delinquency at twice the rate for all age groups. Despite these trends, credit card ABS continue to perform well with pools that overwhelming reflect strong credit characteristics. Bank liquidity challenges notwithstanding, widening risk spreads on highly rated credit card ABS have recovered modestly as investors see strong performance and high quality loans as a safe harbor from intensifying credit headwinds.

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