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Weekly Industry Update: Blackrock's Consumer ABS ETF and Parallels to the High Yield Bond Market

By Vy Phan

May 30, 2017

Shares of Lending Club and OnDeck surged last Monday 3.9% and 9.5% respectively, on reporting from the WSJ citing increased investor appetite for bonds backed by marketplace lending loans. The price action in response to the report underscores public markets focus on execution in the ABS markets. The report, citing bond performance information provided by PeerIQ, shows a substantial tightening in new issue pricing and greater investor acceptance. 

 Also this week, Blackrock announced a new ETF enabling retail investors to access bonds backed by consumer loans. The ETF is an investor-friendly way for investors to access consumer credit with liquidity, daily pricing, and convenience of access via a brokerage account.

The launch of the ETF reminds us of another ETF launch in a rapidly growing credit asset class – the launch of Blackrock’s iShares High-Yield Bond index (Ticker: HYG). HYG was launched in 2007 as a means of creating transparency and liquidity in the new issue high yield bond market.

The market for new issue high yield started quite small initially. Today, the high-yield market today is a mature market consisting of thousands of issues, broad ratings coverage, and a diverse capital market. 

Source: PeerIQ

The high yield bond market has now grown to over two trillion outstanding and the market has tripled in the last ten years alone.  

 New issue high-yield bonds, popularized by Michael Milken, offer an alternative form of financing for non-investment grade issuers. The bonds create a long-term, fixed coupon alternative to financing. MPL ABS, like the high-yield new issue market, also emerged as alternative source of financing to high-cost equity and tight bank credit. 

 Continuing the analogy, the high-yield bond market went through its own cycles of investor frenzy and investor confidence issues borne from lack of transparency and data integrity (see WorldCom and Enron). 

However, unlike the high-yield bond market which is now mature, the MPL ABS market is in its early growth stages. Growth, as documented in the PeerIQ Securitization Tracker, is robust at 59% YOY growth and cumulative issuance is approaching $20 Bn. Non-bank lenders across myriad asset classes are still in the early innings of accessing the debt capital markets to avail themselves of low-cost, non-recourse, permanent capital. 

 At the time of the launch of HYG in 2007, the ETF was greeted with skepticism and seen as an experiment. Today, HYG is considered a resounding success. Tens of billions of high yield risk trade via various ETFs linked to high-yield bond collateral.  

In a few years time, we may look back and point to these and other events as key milestones that lead to MPL ABS as a core component of a fixed income portfolio. 

We wish our readers here in the US safe travels and a peaceful Memorial Day.


PeerIQ CEO, Ram Ahluwalia, will speak at SCI’s 3rd Annual Marketplace Lending Securitisation Seminar on June 22nd in NYC.

PeerIQ in the News:

Industry Update:

Not So Lighter Fare: