2025 U.S. ABS Outlook: All Eyes on the Consumer

Morningstar DBRS published its 2025 U.S. ABS Outlook: All Eyes on the Consumer. Highlights include the following:

-- In this elevated interest rate environment, we expect to see some credit deterioration in underlying subprime consumer asset-backed securities (ABS) collateral, particularly across the auto loans/leases, consumer loans, and timeshare sectors. We continue to have a negative credit rating outlook for subordinated auto loan/lease and consumer loan securitizations.
-- Meanwhile, we have stable credit rating outlooks for the credit card receivable, residential property assessed clean energy (R-PACE), Federal Family Education Loan Program (FFELP) student loan, private student loan, refinanced (refi) student loan, and timeshare sectors.
-- Across commercial ABS, we have stable credit rating outlooks on most sectors, except for film/television royalty-backed ABS, where we have a positive credit rating outlook.
-- For aviation, we have a positive outlook on collateral performance in the sector, with a stable credit rating outlook.
-- While we do expect to see higher delinquencies and defaults in underlying equipment lease and small business loans, deleveraging transaction structures will likely mitigate such credit deterioration.

"Despite the Federal Reserve changing its course and easing monetary policy, consumers remain cautious entering the year because of concerns about the overall economy and future incomes," said Stephanie Chin, Senior Vice President, Structured Finance Research. "A more muted expectation of only two more rate cuts means interest rates will remain elevated this year, while inflation, albeit easing somewhat, also continues to be a concern," added Chin.