Attraction of Inflation Hedge... US ABS Issuance Exceeds 357 Trillion Won

(Photo by Bloomberg)

[Asia Economy Reporter Yujin Cho] U.S. financial institutions are increasing asset-backed securities (ABS) issuance at the fastest pace since the 2008 global financial crisis.

According to Bloomberg News on the 24th (local time), various ABS that can hedge inflation risks?from fast food franchise sales to fitness center membership fees?are emerging.

Bloomberg's data shows that ABS sales in the U.S. have already surpassed $300 billion (approximately 357 trillion KRW) this year, exceeding the annual sales volume of $248.3 billion in 2019, before the COVID-19 pandemic.

Private commercial mortgage-backed debt and collateralized debt obligation issuances are also increasing significantly, and Bloomberg expects sales volume to grow further by the end of the year.

Dave Garson, head of securitized credit at Boya Investment Management, an investment advisory firm, said, "Solar power, consumer finance, and container leasing are being utilized as assets that offer somewhat attractive returns."

Issuance of ABS based on franchise agreements, royalties, and sales revenue is also on the rise. Fitness center franchise "Self Esteem Brands" recently issued $505 million in ABS based on franchise agreements, royalties, and service fees.

Chicken chain "Church's Chicken" also sold approximately $250 million worth of ABS last month, secured by franchise business rights.

Golden Peer Funding recently securitized litigation costs related to personal injury cases, and some have securitized claims on medical expenses.

Daniel Lucy, senior manager of securitized credit at SLC Management, explained, "Everything from cars to homes has solid fundamental recoverable value," adding, "The underlying collateral of many ABS also serves to hedge inflation risk."

He added, "In a low-yield, high-inflation environment, securitized debt is more attractive than short-term corporate bonds in terms of interest rates or yields."

Earlier, Goldman Sachs advised investors to invest in securitized bonds such as ABS instead of corporate bonds, noting that wages, housing, and automobile values are rising due to inflation.

This content was produced with the assistance of AI translation services.