NEW YORK, Dec 16 (Reuters) - New supply of U.S. asset-backed securities is expected to dip in 2004 on a sizable decline in home equity loans, analysts at Citigroup Global Markets said in a report released on Tuesday.
Next year, asset-backed supply including collateralized debt obligations (CDOs) is forecast to shrink to $516 billion, 3 percent less than this year's $531.7 billion.
Bonds backed by home equity loans are expected to drop to $170 billion in 2004, down 20 percent from this year's $212 billion, the analysts said.
"We expect HEL (home equity loans) supply to abate, based on expected higher interest rates and cooling off of the heady refinancing wave of 2003," the Citigroup analysts said in a 2004 forecast report.
Moreover, an anticipated narrowing between short- and long-term rates would make it less profitable for lenders to repackage loans into securities, they said.
As for the other two major ABS asset classes, credit card supply is forecast to grow 10 percent to $68 billion next year, and car loan securitization is expected to inch up 1 percent to $80 billion.
Approximately 75 percent of next year's credit card ABS will be refinancing of debt due. Credit card issuers Bank One , Capital One Financial Corp. , J.P. Morgan Chase , MBNA , American Express and Morgan Stanley's Discover Financial unit each has significant debt rolling off in 2004, the analysts said.
As for the auto sector, good car sales and more deals from prime issuers like Ford Motor Credit Co. should drive next year's supply, they said.