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| David Heike |
Bonds backed by auto loans could face a rocky road in the months ahead as the downgrades of Ford Motor Co. and General Motors to sub-investment grade status continue to reverberate throughout the credit markets. Analysts at Lehman Brothers said in a note to investors last week the auto loan sector will be continue to be dominated by issues affecting two of the Big Three. The recent downgrades, while drawing unwanted headline risk to the sector, are also likely to have the longer-term effect on the asset-backed market. And while inventory is a pressing concern for auto sellers, it could also become one for bond investors as more supply floods the structured finance market. David Heike, head of ABS research at Lehman in New York, noted higher funding costs in the unsecured markets are likely to result in more bonds sold as asset-backeds in the second half of the year, creating a negative technical overhang. "We continue to be wary about the auto loan sector, which should see additional spread widening due to headline risk and increased supply pressures in 2H05," he wrote to investors.