Wealthier Americans mean a bigger bond market

More liquidity means more debt

The Federal Reserve published its latest report on U.S. household wealth, which shows that even while Americans are getting wealthier, they are also taking on a lot more debt.

This is great news for the bond market since, more and more, these auto loans, student loans and credit cards are finding their way into the bond market.

Wells Fargo (WFC) published its Structured Products Quarterly, a report by head of structured products research, Marielle Jan de Beur, and commented on the rising debt on American’s balance sheets. They noted that issuance of bonds backed by the asset classes is rising.

This allows for more liquidity, which means more lending should become available and Americans can take on more debt:

"Asset-Backed Securities issuance has accelerated, especially in bank credit cards and prime auto loans, bringing improved liquidity to benchmark ABS. New issue volume stood at $137.5 billion as of Sept. 15 2014. In our view, a steeper yield curve should make fixed-rate ABS more attractive from a total return perspective. Although risk appetite and demand have improved, we believe that ABS spreads are likely to remain range-bound and vulnerable to headline risk."

However there is also some good news. And we're well beyond the "Wall Street never learns" argument:

"Credit trends are still well behaved and structural protections are robust, in our view."

Of course, there is some legitimately bad developments, as well:

"Over the long term, we view the regulatory frictions being put in place as net negatives for consumer ABS."

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