Spread in Action 2024
Option-Adjusted Spreads (OAS)1
Source: Bloomberg. IG: Investment Grade, ABS: Asset-backed securities, N/A CMBS: Non-agency commercial mortgage-backed securities.
Asset-backed Securities
Historic Issuance
2024 was a record year for overall ABS issuance, representing the largest year-over-year increase (+21.3%) since 2021’s increase of 53.9%, which came on the heels of a dismal 2020.
ABS Issuance ($B)
Issuance by Sector ($B)
|
|
2023 |
2024 |
Change (%) |
| Prime Auto |
76 |
82 |
8 |
| Auto Lease |
23 |
31 |
35 |
| Subprime Auto |
35 |
43 |
23 |
| Student Loans |
7 |
9 |
29 |
| Credit Card |
22 |
20 |
-9 |
| Unsecured Consumer |
15 |
21 |
40 |
| Rate Reduction |
8 |
5 |
0 |
| Solar |
4 |
6 |
50 |
| Device Payment Plan |
5 |
8 |
60 |
|
Consumer ABS
|
194
|
225
|
15
|
| Commercial Auto |
19 |
22 |
16 |
| Equipment |
23 |
27 |
17 |
| Digital Infrastructure |
11 |
15 |
36 |
| Other Commercial |
8 |
35 |
338 |
|
Commercial ABS
|
61
|
99
|
62
|
|
Total ABS
|
256
|
324
|
27
|
Delinquency Rates (%)
At the end of 2024, a final review of the consumer market showed that levels have largely stabilized across most areas of ABS securitization. Unsecured consumer delinquencies have improved compared to the previous year, although there are slight increases in delinquencies in other areas, such as auto loans and credit cards.
Commercial Mortgage-backed Securities
CMBS Issuance ($B)
CMBS finished 2024 with issuance in excess of $150B, easily exceeding 2023’s issuance ($97B) and close to 2022 issuance ($187B). 2024 private label issuance ($112B) more than doubled 2023 issuance ($46B) and outpaced 2022 ($99B).
Delinquency Rates (%)
The overall US CMBS delinquency rate increased 17 basis points (bps), from 6.40 to 6.57 in the final month of 2024. Historic note: The all-time high was 10.34% in July 2012, only slightly ahead of 10.32%, which was the high during COVID (June 2020).
US CMBS delinquency rate climbed 206 bps from December 2023 to December 2024, pushed higher by the near doubling of the delinquency rate in the Office space (5.82% to 11.01%). The expected decrease in longer-term rates from an easing Fed has not materialized, and the potential tailwind has turned into a headwind.
Residential Mortgage-backed Securities
Non-Agency RMBS issuance remained strong, up 93% vs 2023 and 7% ahead of 2022.
RMBS Issuance ($B)
Key
Non-QM: Non-qualified mortgages
RPL/NPL: Re-Performing Loans / Non-Performing Loans
CRT: Charitable Remainder Trust
SFR: Single-family rentals
HELOC/CES: Home Equity Line of Credit/Closed-End Second Mortgage
Housing Market Fast Facts
55+ year olds are now approximately 30% of the US population but control roughly 71% of housing wealth and 79% of stocks/funds
Home prices were up 3.6% year-over-year in October 2024 (most recent data)
20 out of 20 cities (based on Case-Shiller’s 20-city index) saw positive home price appreciation over the past 12 months
Homeowner performance:
- Non-Qualified Mortgage 60-day delinquencies are 3.24%, an increase of 1.57% since the beginning of 2023, illustrating the burden of high mortgage rates
- Prime RMBS 60+ delinquencies are 0.46%, and with the surge in home prices (+50% average increase since the pandemic), expectations are the home equity business to continue surging
Mortgage rates remain elevated, even in the face of an easing Federal Reserve (as of 31 Dec 2024, unless otherwise noted)
- Bankrate US 30Y Fixed Mortgage Rate: 7.15% (as of 15 Jan 2025)
- Freddie Mac 30Y Fixed Mortgage Rate: 6.85%
- 10Y Treasury 4.58%
- 2Y Treasury 4.25%
1Option-Adjusted Spread: Option-Adjusted Spread is the difference between the portfolio yield and the risk-free rate, accounting for embedded options.
Sources: FRED, Barclays, Deutsche Bank, Trepp, Bankrate.
Investment Grade is a Bond Quality Rating of AAA, AA, A or BBB.
Case-Shiller 20-City Index tracks changes in the price of residential real estate in 20 major metropolitan regions in the US.
Bloomberg US Corporate Index measures the performance of the US investment grade fixed-rate taxable corporate bond market. Bloomberg US Mortgage-Backed Securities Index measures the performance of fixed-rate agency mortgage-backed pass-through securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). Bloomberg US Non-Agency CMBS Index measures the market of US Non-Agency conduit and fusion CMBS deals with a minimum current deal size of $300mn. The indexes are unmanaged, include net reinvested dividends, do not reflect fees or expenses (which would lower the return) and are not available for direct investment. Index data source: Bloomberg Index Services Limited. See diamond-hill.com/disclosures for a full copy of the disclaimer.
ICE BofA AAA US Fixed Rate CMBS Index tracks the performance of commercial mortgage-backed securities (CMBS) with a AAA rating. ICE BofA AA US Fixed Rate CMBS Index tracks the performance of commercial mortgage-backed securities (CMBS) with a AA rating. ICE BofA A US Fixed Rate CMBS Index tracks the performance of commercial mortgage-backed securities (CMBS) with a A rating. ICE BofA BBB US Fixed Rate CMBS Index tracks the performance of commercial mortgage-backed securities (CMBS) with a BBB rating.
The views expressed are those of Diamond Hill as of January 2024 and are subject to change without notice. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.