Fitch: US Credit Card ABS Stable if Rates Rise Slowly

NEW YORK--(BUSINESS WIRE)-- US Credit card ABS performance should remain stable during a gradual interest rate rise, Fitch Ratings says. We continue to expect the Federal Reserve to start raising interest rates in mid-2015 and to follow a gradual tightening path, leading to 2% at year-end 2016.

We expect credit card ABS metrics for the February reporting period to weaken slightly in line with seasonal trends, but remain near record levels of strength. Prime chargeoffs will likely rise after decreasing by 14 bps to 2.67% in January. Prime 60+ day delinquencies will likely tick up. Prime gross yield and monthly payment rate (MPR) will stay in their seasonal ranges. MPR fell to 27.36% in January.

Retail metrics, including private label cards should also weaken slightly over the near term. Chargeoffs will rise in line with their seasonal trends, while 60+ day delinquencies may decline slightly. Retail gross yield will also rise in line with its seasonal trends and the MPR is expected to decrease slightly. Our views are based on preliminary data from the February reporting period, as of Feb. 28, 2015, and the March distribution date. Actual results will be available in early April.

Over the long term, if rates rise faster than we anticipate, credit card securitizations could see some increases in delinquencies and charge-offs as consumers become pressured by higher required payments on their overall variable-rate debt obligations. However, we feel the impact on delinquencies and chargeoffs will be minimal given the level of postcrisis deleveraging and the flexibility consumers have to cut back on card payments if necessary.

Additionally, our view is that improvement in the US labor market should continue to support credit card ABS collateral metrics as we expect labor force participation to rise as more jobs are created. The Bureau of Labor Statistics reported this month that the unemployment rate had decreased to 5.5%, while the labor force participation rate continues to indicate some slowing in its declines, holding at just below 63% in February.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Fitch Ratings
Steven Stubbs
Senior Director
U.S. Structured Finance, ABS
+1 212-908-0676
33 Whitehall Street
New York, NY
or
Rob Rowan
Senior Director
Fitch Wire
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Source: Fitch Ratings

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