While the global economy may still be dealing with the after-effects of the financial crisis of 2008, the latest subprime fear in the auto industry has already started to worry investors.
In a note last week, UBS analysts Matthew Mish and Stephen Caprio said the latest subprime auto default data has been more than raising eyebrows in financial circles and the wider economy. While many analysts have been trying to explain subprime default rates for recent vintages that have reached levels just prior to the financial crisis of 2008, a number of U.S. banks have predicted consumers and auto delinquencies to rise further in 2017.
Another report from Morgan Stanley recently described a third of the risky loans bundled into bonds as "deep subprime". The report said that this level has spiked since 2010 and is now slowly translating to higher delinquencies on loans. And the securitization market has become more heavily weighted towards
"The percentage of subprime auto-loan securitizations considered deep subprime has risen to 32.5 percent from 5.1 percent since 2010," Morgan Stanley said. "Auto loan fundamental performance, especially within ABS pools, continues to deteriorate."