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July 19, 2010

  • News:  Is It Time To Buy Credit Card Securities?

    Recent reports by most lenders indicate that card defaults have begun to level off and delinquencies are trending down. Good news for banks and investors interesting in grabbing a piece of the credit card market. On the other hand, new legislation could have some negative impacts on future growth. Banks are saying investors should not be shy in pursing investment opportunities. Wells Fargo Securities are encouraging investors to take a stronger interest in purchasing subordinate bonds that are backed by credit card assets. According to the bank, overall, U.S. credit card debt fell last month for the sixth consecutive month to $327 billion, $3.8 billion less than the previous month.

    According to Wells Fargo report, securities that are backed credit card debt is rated BBB which is the second lowest investment grade, yielded much more that other bonds rated BBB. Recent reports indicated that security bonds backed with credit card debt yielded nearly 200 points more. Bonds supported by card debt fell an overwhelmingly 78 percent during the first half of the year as investors became shy about dropping money into a market in crisis. According to market analyst John McElravy, it will be some time before card securities demonstrate any significant changes; however, they are providing higher yields "without undue credit risk." Wells Fargo expects that card defaults and delinquencies will continue to improve making these asset backed securities a wise choice for future growth.

    Overall, U.S. cardholders have been a good job of pulling credit in line and managing their responsibilities as credit card defaults fell to 9.60 percent for the month of June, down from 10.15 percent the previous month. Card payments that are delinquent 30 days or more fell to 3.74 percent for June; the fifth consecutive month that delinquencies have fallen. Wells Fargo expects that card delinquencies and defaults will continue to improve as the recession ends and consumers gain added confidence in the economy.

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