The brightening prospects for the Canadian economy support a stable outlook for the Canadian securitization market, says Moody’s Investors Service.
In a new report, the rating agency says that it is maintaining its stable outlook for Canadian asset-backed securities (ABS), residential mortgage-backed securities (RMBS), and covered bonds in 2014 because of the improving Canadian economy. The assets backing these securities are predominantly consumer receivables, whose performance correlates to economic conditions, it notes.
The firm says that Canadian GDP, which accelerated toward the end of 2013, will continue to grow in 2014, as the recovering U.S. economy and a weakening Canadian dollar bolster demand. “Rising Canadian GDP and employment bode well for the performance of securitized collateral,” says Richard Hunt, a Moody’s vice president and senior analyst.
Moody’s says that delinquency and charge-off rates for credit card ABS receivables, which are currently back to their pre-crisis levels, will continue to improve. Canadian auto ABS performance will also remain strong in 2014, with net losses staying near their all-time lows.
The credit quality of Canadian covered bonds will also be strong and stable in 2014, it predicts; noting the strong financial standing of the issuers, and the high quality of the residential mortgage collateral.