Kroll Bond Rating Agency (KBRA) released its outlook on the ABS sector, examining key trends from 2021 and providing forecasts for the new year.

KBRA expects some of the same tailwinds that benefited the ABS market over the past year to continue into the next, but headwinds will likely strengthen in the months ahead, causing the occasional bout of turbulence in 2022. The ABS market will likely remain an attractive source of funding for issuers/sponsors across the spectrum of ABS asset types given low benchmark rates and strong investor demand. This, coupled with the strong economic growth we expect for 2022, should help keep new issue supply at elevated levels. However, the start of tapering by the Federal Reserve at the end of the year and any potential rate hikes in 2022 could hamper year-over-year (Y/Y) supply growth.

Key takeaways from the report include the following:

• KBRA forecasts approximately $300 billion in new issue volumes in 2022, down slightly from the record amount of supply estimated to price in 2021.

• KBRA expects the end of stimulus and federal safety net programs will inevitably cause consumer credit performance to weaken to more normalized levels, but the pace and timing of this credit normalization remains unclear. Its current expectation is that any weakening in consumer credit fundamentals will be gradual and more likely to appear in the second half 2022 as borrowers are able to tap savings and/or unutilized credit card capacity.

• Most commercial ABS assets should benefit from strong GDP growth in 2022, as well as from elevated consumer and business confidence and the continuation of accommodative monetary policy.