Greg Parsons, CEO of Semper Capital Management, quipped in February 2018 that securities backed by commercial mortgages, auto loans and credit card payments tend to “have muted volatility when the world gets screwy.” The largest structures in the Bloomberg Barclays credit card ABS index all carry triple-A credit ratings. Those investors have nothing to worry about at this point.
Card issuers, on the other hand, should become more vigilant, if they haven’t already. Of course, a knock-on effect of more stringent standards is that they can potentially slow U.S. growth. That might already be in the works anyway: The New York Fed report noted that the number of credit inquiries in the past six months, an indicator of demand for credit among consumers, fell to the lowest level since the data begin.
With the U.S.-China trade war seemingly in full swing, the credit card industry will be worth watching more than ever for signs of how tariffs are hitting the pocketbooks of American consumers. By some rough calculations, tariffs on all Chinese imports would cost U.S. households $2,000 a year in higher prices. Clearly, that sort of extra burden could push at-risk borrowers deeper into delinquency, whether they’re millennials or those who found their footing after the financial crisis.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.