Nissan Sells Car Loans Bonds
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UPDATED: Aug 2, 2012
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Nissan sold $1.4 billion of bonds tied to car loans at record low rates in July as part of ongoing efforts by the Federal Reserve to spur economic growth and reduce borrowing costs.
According to Citigroup, which managed the transaction, these top-rated securities had an average life of 1.49 years with a 0.481 percent yield. This was the lowest recorded financing rate offered by an auto company in the asset-backed market.
Issuing asset-backed securities is a growing trend as investors continue to seek alternatives to Treasuries, which have reached record-low yields. From Ford to JPMorgan Chase, various companies have sold a combined total of roughly $129 billion in asset-backed securities that are linked to consumer and business borrowing this year.
“We are seeing extraordinary demand for safe assets in the face of broader market volatility,” said Gerry Keefe, the New York-based head of securitized products at Citigroup, in a Businessweek interview. “Demand is far outstripping supply.”
The Federal Reserve maintained the target rate of overnight loans between banks at zero to 0.25 percent since 2008. The Federal Reserve expects to maintain the rate low through late 2014. This benefited the transfer and sale of bonds by keeping their costs down as they were transferred from previous owners to new owners.
Investors are gobbling up bonds that are linked to prime car loans since these coveted notes boast a default rate of less than 1 percent, according to Moody’s Investors Service. Delinquencies of more than 60 days on these prime car loans rested at a mere 0.38 percent in May. This fell from 0.88 percent one year prior.
Investors lump these car loan bonds in with other asset-backed securities (ABS). ABS, which are collateralized through the profit and revenue of whatever industry they’re linked to, are quickly becoming the most dependable place for investors to put their money.
“Consumer ABS has a growing safe haven,” status, said John McElravey, an analyst at Wells Fargo.
Investors are confident that U.S. households that will stay current on their auto-related bills. The consumer confidence index increased to 65.9 in July from a low of 62.7 in June. According to the Conference Board, a New York-based private research group, this is the first time in five months that confidence among investors in the U.S. has risen.
By being so dependable, even amid a long recession, the car loan industry has shown it is a prize to be won by investors.