Despite the sobering effects of the bankruptcy filing by Orange County, Calif., and a rise in short-term Treasury rates during December, the asset-backed securities market finished 1994 with a record $75.9 billion in total issuance, up 27% from the $59.89 billion recorded in 1993, according to Capital Markets Assurance Corp., New York.
"The asset-backed sector was a bright spot in the bond market, where in the aggregate total issuance was down significantly," said a report by CapMac.
Significant increases in credit cards, home equities, manufactured housing and the "other" category of asset-backed issues offset a decline in automobile-backed issues.
"In general, the strong issuance was attributable to the improved economy and strong demand for credit."
Floating-rate asset-backed securities issuance also grew, as a percent of the total market.
The ABS sector proved to be a safe haven by posting positive returns over other bond sectors of comparable quality and duration. During 1994, short-duration amortizing structures posted the best annualized total returns mainly because of higher interest rates and a flatter yield curve.
For instance, the Merrill Lynch auto sector index posted a 2.637% return in the 11 months through Nov. 30, 1994 and the AAA-rated ABS Master Index rose 0.833%. Short-term corporates had returns of -0.224% while intermediate-term U.S. Treasury securities fell 3.370%.