TwentyFour

Within the European ABS landscape, Volkswagen Leasing has solidified its role as a benchmark issuer under the Volkswagen Compartment Leasing (VCL) platform. Volkswagen uses this platform – with over 25 years of history – to finance standard German auto loans. It is probably one of the least exciting platforms but also one of the most liquid ABS investments you can buy.

The worsening US consumer credit data has largely fallen under radar. A few weeks ago, November 2023 data came in at $23.8bn representing a substantial increase from October’s $5.77bn and September’s $10.9bn.

Federal Reserve Governor Christopher Waller gave a speech on November 28 titled: “Something Appears to Be Giving”, where he laid out the reasons why he is becoming more confident of the Fed’s ability to bring inflation down to its 2% target. 

There is good reason for fixed income investors to be positive as we move into 2024, although there is also reason to remain cautious. The welcome news is that inflation globally has finally started to fall after remaining stubbornly high for most of 2023.

With most central banks presumably at highs in terms of monetary policy rates during the current cycle, the focus has rightly shifted to the timing of the first cut. 

Last year saw returns in European high yield (HY) of approximately 12%, driven by tighter spreads (-102bps) and lower government bond yields (five-year bunds were -59bps).

Douglas Charleston, believes 2024 will continue to provide the carry that has been so welcome, but see market growth and diversity continuing to make European ABS increasingly scalable. 

2023 proved to be a second year where European ABS gave investors the strongest returns in fixed income with the benefit of very low volatility. As risk-free rates grew to what we expect to be the peak, income was maximised whilst the various market pivots on rates came and went in the rear view mirror.

December’s CPI inflation report showed numbers slightly ahead of consensus in the US. On a month-on-month basis, headline CPI came at 0.3% compared to a Bloomberg consensus of 0.2%, whereas core CPI figures were in line with said consensus at 0.3%.

We recently highlighted in our 2024 outlook our expectations of significant inflows into fixed income to be an important technical driver of performance in the year ahead.

In a particularly noteworthy start to the year, we have seen the UK take the lead in the ABS primary markets, with two UK master trust RMBS deals pricing in the first week of January,

The solid end to 2023 for financial markets has influenced a positive start to 2024.