Bond Exotica Gains Favor in Era of Low Rates
By Sarah Mulholland, Bloomberg News
Jan 4, 2012 5:33 AM ET
So-called esoteric asset-backed securities issuance may soar 12.9 percent to $35 billion, compared with debt linked to more traditional collateral such as auto and credit-card loans, which will grow 8.75 percent to $87 billion, according to a forecast from Credit Suisse Group AG.
Esoteric bonds make up 16 percent of the $620 billion market for asset-backed securities outstanding, with debt tied to credit card, student and auto loans accounting for the rest, according to data from Wells Fargo.
Wells Fargo’s recommendations for 2012 include debt backed by timeshare payments and fleets of rental cars, according to a Dec. 6 report from analysts led by John McElravey in Charlotte, North Carolina.
A disadvantage of esoteric bonds for investors is that they can be hard to sell because they don’t trade frequently. As a result, investors require the additional yield, said Barclays Capital’s Wishengrad.
Double digit returns on investment are guaranteed neither by the Constitution nor the Bible and even Freshwater Shamen don’t contend they are risk free.