Summary of Key Points from the ABS Market Outlook Industry Overview - The report focuses on the Asset-Backed Securities (ABS) market, specifically projections for 2026 and the performance of various sectors within the ABS space [1][2][3]. Core Insights and Arguments Spread Expectations - Spreads for most ABS sectors are expected to tighten through the end of 2025 and into Q1 2026, with a forecast for the ICE BofA US Fixed Rate ABS Index (R0A0) to tighten by up to 20 basis points (bp) to a range of 70-85bp [1][8][9]. - The current spread for R0A0 is 95bp, compared to a 24-month minimum of 76bp [1][9]. - If tightening does not occur, spreads are anticipated to remain rangebound between 85-105bp [1][9]. Supply Projections - Gross new issue volume for ABS is projected to reach $387 billion in 2026, marking an increase from $360 billion in 2025 [2][65]. - Net new issue volume is expected to be $95 billion in 2026, up from $67 billion in 2025 [2][65]. - Consumer-related ABS is forecasted to have a gross volume of $257 billion and a net volume of $29 billion, while commercial ABS is expected to reach $130 billion [2][66][68]. Credit Outlook - Weaker credit metrics are anticipated for most consumer debt and related ABS in 2026, with potential for stabilization or improvement by mid-2026 [3][16]. - Divergence in performance is expected based on borrower profiles and loan types, with mixed performance in commercial ABS sectors [3][16]. Market Dynamics - The ABS market is influenced by factors such as consumer borrowing levels, lender preferences for ABS funding, and economic conditions [71][90]. - The willingness to lend is expected to increase gradually, supporting higher consumer credit balances [89][90]. Additional Important Insights Sector-Specific Performance - The report highlights preferences for certain ABS sectors, including solar ABS, datacenter & fiber ABS, and higher-tier subprime auto loan ABS, which are expected to perform better due to wider spreads compared to their 24-month minimums [39][41]. - The report notes that the current basis between ABS and IG corporate indices is 46bp, which is above the minimum threshold, indicating a preference for ABS over IG corporates [25][26]. Economic and Policy Influences - The impact of the Trump Administration's policies on the ABS market is discussed, noting mixed effects on sectors such as subprime auto loans and container shipping [22][23][24]. - Changes in federal policies regarding student loans and clean energy credits are expected to create headwinds for specific ABS markets [24][27]. Yield Expectations - The ABS market is projected to offer attractive yields, with current yields for the ICE BofA Fixed-Rate ABS index significantly higher than the 20-year average [32][35]. - Total and excess returns for ABS in 2026 are expected to be positive, although not as high as in 2023 and 2024 [52][54]. Conclusion - The ABS market is poised for growth in 2026, driven by increased issuance and a favorable economic backdrop, despite anticipated challenges in credit performance and sector-specific dynamics. Investors are encouraged to focus on sectors with strong fundamentals and potential for spread tightening.