GM Financial is paying more to borrow in ABS market

Article by Anita Panait, on August 12, 2013

Auto loan rates may climb in the near future as General Motors Financial Co. revealed that it is paying more to borrow in the asset-backed debt market. GM Financial, which was formerly known as AmeriCredit, is offering top-ranked securities maturing in 2.1 years to pay up to 50 basis points -- or 0.5 percentage point -- more than the benchmark swap rate, according to a source privy with the matter.

The company, 40 basis points more than swaps on similar debt sold June 13, 2013, up from 24 basis points on April 3, 2013. Bond buyers are seeking for higher relative yields on securities tied to subprime buyers although fixed-income markets snap back from a sell-off triggered by a statement by Federal Reserve Chairman Ben S. Bernanke that the central bank may start trimming record stimulus in the next few months.

Transactions linked to auto loans covering all buyers account for a large chunk of the asset-backed market. According to data compiled by Deutsche Bank AG, transactions linked to auto loans accounted for around $36.3 billion of $105.8 billion of transactions offered this year.

Christopher Sullivan, chief investment officer at United Nations Federal Credit Union, told Bloomberg in an e-mail that there is “a lot of uncertainty” that is forcing managers to allocate to shorter duration, higher-quality options, adding that a satiation point may have already been reached this type of credit amid worries on rising interest rates.

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