June 03, 2021
A major cyclical wave in consumer loan delinquencies, devastating the ABS market, would require an economic downturn that interrupts the labor market recovery. More likely, we expect a modest rebound in delinquency and default rates as forbearance runs out.
The deterioration should be limited due to the best consumer financial health in many years, and a quick rebound in the industrial sectors where worker incomes are the lowest. Stay at benchmark in ABS overall, but continue to favor subordinated issues and the three Covid-losers that still have some excess return potential.