マーケット・ブログ

MARKETS
18 March 2020

Is Mortgage and Consumer Credit Virus Prone?

By Greg Handler, Ion Dan

Aggregate US consumer fundamentals remain strong and stable for the time being, even as the effects and risks of COVID-19 continue to grow rapidly. The ratio of consumer financial obligations relative to disposable income has declined meaningfully, and currently stands at 20-year lows. While the overall level of mortgage and consumer debt has grown since the great financial crisis (GFC), the debt burden to the consumer continues to decline, specifically due to falling interest rates and the rise in disposable income, both of which have supported the deleveraging process (Exhibit 1).

Exhibit 1: Consumer Balance Sheets Have Improved Along With Default Rates
Explore Consumer Balance Sheets Have Improved Along With Default Rates
Source: Bank of America Merrill Lynch, Federal Reserve, Western Asset. As of 30 Sep 19. Select the image to expand the view.

From a consumer stimulus perspective, with mortgage rates continuing to decline, most US homeowners have an incentive to refinance. Given the rapid moves in Treasury rates, mortgage rates have lagged in adjusting as originators’ capacity for processing refinance and purchase applications has been constrained. Lenders are aggressively staffing to address the growing demand from mortgage borrowers; however, lockdowns and social distancing associated with the response to the virus complicate business decisions. As capacity constraints improve and rates remain low, more borrowers will take advantage of historically low mortgage rates, which will manifest in higher prepayments and supply for agency mortgage-backed securities (MBS) investors, while at the same time improving consumer credit fundamentals.

We are constructive on agency MBS given our view that monetary policy will be accommodative for an extended period. On Sunday March 15, 2020, the Fed eased monetary policy by an additional 100 bps and authorized $700 billion in Fed purchases across US Treasury and agency MBS markets ($500 billion in US Treasury and $200 billion in agency MBS). These additional measures are designed to smooth functioning of markets for Treasury securities and agency MBS that are central to the flow of credit to households and businesses. We believe conventional MBS offer better relative value and a liquidity advantage over Ginnie Mae issued MBS, focusing on coupons and collateral stories with more predicable prepayment profiles. Exhibit 2 highlights that agency MBS spreads have largely discounted the surge in refinancing applications.

Exhibit 2: Refinancing Activity and Mortgage Spreads
Explore the Refinancing Activity and Mortgage Spreads
Source: Bloomberg, Mortgage Bankers Association. As of 06 Mar 20. Select the image to expand the view.
*MBS spread represents Bloomberg Barclays US MBS Index Zero Volatility Spread

The housing market has notably lower leverage today based on low loan-to-value ratios and high quality underwriting. Additionally, we have observed low levels of new construction, limited inventory of existing homes and increasing demand from low mortgage rates. We expect home prices to remain steady with limited downside risk, given the lack of supply and leverage in the system. Against this backdrop, fundamentals for securities that are backed by residential credit are favorable. Additionally, the structural features embedded in securitization markets today are far superior to ones we saw pre-GFC, and are built to withstand significant stress. To the extent individuals face quarantines related to COVID-19, we expect servicers to act sympathetically and provide forbearance on loans in affected areas. Similar to what occurs in areas of natural disasters, Fannie and Freddie guidance allow servicers to provide forbearance up to a cumulative term of 12 months with additional forbearance possible if approved by the government-sponsored enterprises (GSEs). We have seen these programs work effectively recently in times of natural disasters such as wild fires and hurricanes. Troubled loans are typically kept in pools for a lengthy period with principal and interest advancement for investors, which is followed by buyout programs.

Commercial real estate has also benefited from a lack of construction and improved demand. However, we are mindful of areas in the commercial MBS (CMBS) market that will be more exposed to COVID-19 risks, most notably hotels and retail properties. These deals are also more soundly structured today, and our focus is on Class A properties with well-capitalized sponsors capable of withstanding short-term disruptions. We would express significant caution on lower quality Class B/C properties and more levered properties that you typically see in CRE-CLOs and Conduit CMBS. We would be cautious in these subsectors.

Asset-backed securities (ABS) markets also vary in exposure from high quality to lower quality borrowers, and asset classes that are more exposed to travel and US recession risks. The areas of primary concern are lower quality consumer ABS such as subprime auto loans and unsecured consumer credit. These borrowers are more susceptible to near-term income disruption. Travel- and trade-related assets such as aircraft ABS, timeshare ABS and container shipping are also under significant pressure. We would be cautious in these sectors as well.

In our view, as volatility in financial markets increases, US fixed-income investments backed by high quality mortgage and consumer loans are expected to provide better risk-adjusted return outcomes. Agency MBS offer a liquidity advantage and an explicit/implicit government guarantee of underlying cash flows for investors, while non-agency structured credit has strong fundamentals.

During the month of February as volatility picked up, performance in our strategies supports our conviction. With that said, a severe and prolonged global economic slowdown will certainly impact most spread sectors negatively and we may see increased levels of delinquencies and write-downs that will start negatively affecting the bottom tranches of different transactions. However, this is not our base case scenario at Western Asset. The Fed’s proactive reduction of its target rate by 150 bps will have little effect to correct a supply shock due to COVID-19 but it will certainly be a positive development for the demand side of the equation. Furthermore, from the consumer point of view, lower prices at gas stations combined with money saved from refinanced mortgages and potential payroll tax cuts will free up some cash, improve balance sheets further and make the fundamental macro picture more attractive.

投資一任契約および金融商品に係る手数料(消費税を含む):
投資一任契約の場合は運用財産の額に対して、年率1.0%(抜き)を上限とする運用手数料を、運用戦略ごとに定めております。また、別途運用成果に応じてお支払いいただく手数料(成功報酬)を設定する場合があります。その料率は、運用成果の評価方法や固定報酬率の設定方法により変動しますので、手数料の金額や計算方法をこの書面に記載することはできません。投資信託の場合は投資信託ごとに信託報酬が定められておりますので、目論見書または投資信託約款でご確認下さい。
有価証券の売買又はデリバティブ取引の売買手数料を運用財産の中からお支払い頂きます。投資信託に投資する場合は信託報酬、管理報酬等の手数料が必要となります。これらの手数料には多様な料率が設定されているためこの書面に記載することはできません。デリバティブ取引を利用する場合、運用財産から委託証拠金その他の保証金を預託する場合がありますが、デリバティブ取引の額がそれらの額を上回る可能性があります。その額や計算方法はこの書面に記載することはできません。投資一任契約に基づき、または金融商品において、運用財産の運用を行った結果、金利、通貨の価格、金融商品市場における相場その他の指標に係る変動により、損失が生ずるおそれがあります。損失の額が、運用財産から預託された委託証拠金その他の保証金の額を上回る恐れがあります。個別交渉により、一部のお客様とより低い料率で投資一任契約を締結する場合があります。
© Western Asset Management Company Ltd 2020. 当資料の著作権は、ウエスタン・アセット・マネジメント株式会社およびその関連会社(以下「ウエスタン・アセット」という)に帰属するものであり、ウエスタン・アセットの顧客、その投資コンサルタント及びその他の当社が意図した受取人のみを対象として作成されたものです。第三者への提供はお断りいたします。当資料の内容は、秘密情報及び専有情報としてお取り扱い下さい。無断で当資料のコピーを作成することや転載することを禁じます。
過去の実績は将来の投資成果を保証するものではありません。当資料は情報の提供のみを目的としており、作成日におけるウエスタン・アセットの意見を反映したものです。ウエスタン・アセットは、ここに提供した情報が正確なものであるものと信じておりますが、それを保証するものではありません。当資料に記載の意見は、特定の有価証券の売買のオファーや勧誘を目的としたものではなく、事前の予告なく変更されることがあります。当資料に書かれた内容は、投資助言ではありません。ウエスタン・アセットの役職員及び顧客は、当資料記載の有価証券を保有している可能性があります。当資料は、お客様の投資目的、経済状況或いは要望を考慮することなく作成されたものです。お客様は、当資料に基づいて投資判断をされる前に、お客様の投資目的、経済状況或いは要望に照らして、それが適切であるかどうかご検討されることをお勧めいたします。お客様の居住国において適用される法律や規制を理解し、それらを考慮する責任はお客様にあります。
ウエスタン・アセット・マネジメント・カンパニーDTVM(Distribuidora de Títulos e Valores Mobiliários)リミターダ(ブラジル、サンパウロ拠点)はブラジル証券取引委員会(CVM)とブラジル中央銀行(Bacen)により認可、規制を受けます。ウエスタン・アセット・マネジメント・カンパニー・ピーティーワイ・リミテッド (ABN 41 117 767 923) (オーストラリア、メルボルン拠点)はオーストラリアの金融サービスライセンス303160を保有。ウエスタン・アセット・マネジメント・カンパニー・ピーティーイー・リミテッド(シンガポール拠点)は、キャピタル・マーケット・サービス(CMS)ライセンス(Co. Reg. No. 200007692R) を保有し、シンガポール通貨監督庁に監督されています。ウエスタン・アセット・マネジメント株式会社(日本拠点)は金融商品取引業者として登録、日本のFSAの規制を受けます。ウエスタン・アセット・マネジメント・カンパニー・リミテッド(英国、ロンドン拠点)は英金融行動監視機構(FCA)により認可、規制を受けます。当資料は英国および欧州経済領域(EEA)加盟国においては、FCAまたはMiFID IIに定義された「プロフェッショナルな顧客」のみを対象とした宣伝目的に使用されるものです。
ウエスタン・アセット・マネジメント株式会社について
業務の種類: 金融商品取引業者(投資運用業、投資助言・代理業、第二種金融商品取引業)
登録番号: 関東財務局長(金商)第427号
加入協会: 一般社団法人日本投資顧問業協会(会員番号 011-01319)
一般社団法人投資信託協会

-->