U.S. ABS 2025 Midyear Outlook: Tariff Talk and Uncertainty Dominate the Economy

Morningstar DBRS published its U.S. asset-backed security (ABS) midyear outlook update.

Key highlights include the following:

-- In an elevated interest rate environment, Morningstar DBRS has seen some credit deterioration in underlying subprime consumer asset-backed securities collateral. Morningstar DBRS has negative credit rating outlooks on auto loan/lease and consumer loan ABS, while Morningstar DBRS has stable credit rating outlooks for the credit card receivable, residential property assessed clean energy, Federal Family Education Loan Program student loan, private student loan, refinanced student loan, and timeshare sectors.

-- Morningstar DBRS has stable credit rating outlooks on all commercial ABS sectors, except for film/television royalty-backed ABS, which has a positive credit rating outlook. Morningstar DBRS has a positive outlook on collateral performance in the aviation sector, with a stable credit rating outlook. Morningstar DBRS anticipates seeing higher delinquencies and defaults in underlying equipment lease, small business loan, and venture debt; however, deleveraging transaction structures will likely mitigate such credit deterioration.

"Growth concerns have expanded on the heels of Liberation Day, as trade tensions remain volatile in the face of the Trump administration's tariff proposals," said Stephanie K. Chin, Senior Vice President, Structured Finance Research, at Morningstar DBRS. "In addition, the latest conflict in the Middle East may also damper economic prospects with higher energy prices."