Bloomberg News

Nissan Sells $1.4 Billion of Auto ABS at Lowest Yield on Record

July 31, 2012

Nissan Motor Co. sold $1.4 billion of bonds tied to auto loans at the lowest rate ever as the Federal Reserve’s efforts to spur economic growth reduce borrowing costs.

The company issued the top-rated securities with an average life of 1.49 years to yield 0.481 percent, the lowest financing rate for an auto company in the asset-backed market on record, according to data from Citigroup Inc. (C:US), the lead manager of the transaction. Though spreads on the debt were narrower in 2006, the higher lending benchmarks boosted the cost, the data show.

Issuance of asset-backed securities is surging as investors seek out safe alternatives to Treasuries, which recently reached record-low yields. Companies from Ford Motor Co. to JPMorgan Chase & Co. have sold about $129 billion in asset-backed securities linked to consumer and business borrowing this year, with auto debt accounting for $62 billion, excluding today’s sale, according to data compiled by Bloomberg. Citigroup raised its 2012 asset-backed forecast this month by about 50 percent to $183 billion.

“We are seeing extraordinary demand for safe assets in the face of broader market volatility,” Gerry Keefe, the New York- based head of securitized products at Citigroup, said in a telephone interview. “Demand is far outstripping supply.”

Treasury yields sank to record lows last week, with the 10- year note falling as low as 1.379 percent on July 25 amid concern that the European debt crisis was slowing the global economy. The 30-year bond touched a record 2.44 percent July 26.

Haven Status

The Fed has kept its target rate for overnight loans between banks at zero to 0.25 percent since December 2008, and said it expects to keep it “exceptionally low” through at least late 2014.

Investors are snapping up bonds linked to auto loans with delinquencies holding at less than 1 percent, according to Moody’s Investors Service. Payments more than 60 days late from borrowers with the best credit stood at 0.38 percent in May, down from 0.88 percent a year earlier, the New York-based ratings company said in a July 17 report.

“Consumer ABS has a growing safe haven,” status, said John McElravey, an analyst at Wells Fargo & Co. based in Charlotte, North Carolina.

Investors are wagering that U.S. households will stay current on their bills with confidence among U.S. consumers unexpectedly rising for the first time in five months in July, according to the Conference Board. The New York-based private research group’s index increased to 65.9 this month from 62.7 in June, according to figures released today. Economists projected a reading of 61.5, according to the median estimate in a Bloomberg News survey.

U.S. auto sales for June beat analysts’ estimates, accelerating to a 14.1 million seasonally adjusted annualized rate, researcher Autodata Corp. said in a July 3 statement. The pace exceeded the average 13.8 million light-vehicle estimate of 15 analysts surveyed by Bloomberg.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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