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Investors Increasingly Wary of Car Loan Bonds

The Bank of England has voiced its concerns about the rising consumer debt levels, particularly in the car loan market. This, in turn, has made all the investors wary about the UK car loan market and the kind of bonds being sold in car loans.

If you’re wondering how loans and bonds are related, here’s how: the car loans are converted into tradable bonds. And these bonds are the one thing all investors are primarily interested in. As the focus shifts entirely to the car loan market, we see that the Bank of England has stepped in to take charge. Since the level of consumer credit still rising, the Bank of England has increased its counter-cyclical buffer. What this does is that it works to limit the lending of all the banks in the UK.

However, all of this doesn’t stop Ford Credit Europe from signing on a securitisation deal. A securitisation deal is basically a technique used for financing when it comes to assets like mortgages and auto loans. Since auto securitisation bonds are usually low risk, they’re the definite safer choice for all investors

Despite this positive securitisation deal by Ford Credit Europe, many investors still continue to eye the car loan bonds with suspicion. Since auto loans have low risk, this also means they give low returns. And that is exactly why most investors are now choosing to move away from such a low-profit market and are exiting the car loan market altogether. Since these investors have left, the value of the bonds has further fell and now huge amounts of the UK auto market’s bonds are being traded at negative yields, so they’re basically good for nothing almost.

To bring the market back up in order to get investors to reenter, all eyes are on the Bank of England, anticipating its next move.

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