Credit crunch

Question: As certain credit metrics deteriorate, where might investors find opportunity?

Nicholas Tripodes: So we've seen a slight uptick in delinquencies and charge-offs for credit card securities. But if you think about overall, the economy, interest rates are higher, inflation is higher, so the consumer is starting to get a little bit more stretched. However, the biggest impact on consumer spending and their ability to make payments is really the unemployment rate. So the most recent prints of unemployment continue to be very strong, currently around a 3.9% unemployment rate. So even though we're seeing an increase, it's probably a little bit more focused on subprime versus prime credit card borrowers. And really what we're seeing now is more of a kind of reversion to the mean and getting back to levels like pre-pandemic. So there's nothing to be very concerned about right now, especially in this low unemployment rate environment. When you look at the prime credit card shelves from the large U.S. banks and even some of the Canadian banks, they're doing very well. Payment rates are still very high, excess spread is still very high and even higher than pre-pandemic levels. So I don't think there's anything to be too concerned about for investors. Like I mentioned, they're still very well-structured in terms of subordination and excess interest that are able to absorb losses and we're still not even seeing levels that we saw pre-pandemic. So I think there's still a lot of very good opportunities to invest in credit card ABS securities.