The ABS market's record year has a catch

Record asset-backed securities (ABS) issuance. Spreads at year-to-date tights. But underneath, a bifurcated consumer is quietly narrowing the margin for error.Teri Savage, Senior Trader on RBC GAM's BlueBay U.S. Fixed Income team, breaks down what's driving the ABS market's record pace, and why security selection has never mattered more.ABS gross issuance is on pace for a record year, fueled by funding costs, diversification needs, consumer debt growth, and new sectors entering the market - yet spreads now sit at year-to-date tights across most subsectors.The consumer is holding up overall, but the picture is bifurcated: stress is concentrated in subprime borrowers, and while early-stage delinquencies remain below pre-pandemic levels, they're expected to rise gradually as higher rates increase pressure.With spreads historically stretched and the wiggle room for error narrowed, risks span geopolitical, technical, and fundamental factors — making credit tiering and active security selection increasingly critical for ABS investors.