Global securitization issuance continued to be on pace for another trillion-dollar (USD equivalent) year in 2019, as volume came in at approximately $770 billion through September, up from $750 billion in the comparable period a year ago. While China saw issuance growth slow in the third quarter, it nevertheless had the most gains year-over-year (y/y) for the first nine months of 2019 at just over $200 billion in total volume. Meanwhile, the U.S. was flat at $409 billion as growth in private label RMBS, including non-qualified mortgage (non-QM), made up for a slowdown in CLOs from last year's record pace. Europe is down about 12% to €68 billion overall, although the declines were largely attributable to conditions present at the beginning of the year; the markets continue to settle in following some regulatory uncertainty in early 2019. Australia, Japan, and Latin America logged modest y/y growth, while Canada experienced a moderate decline in volume.

Table 1

U.S.

The U.S. structured finance (SF) new issuance volume was $129 billion during Q3 (up 4% y/y for the quarter), bringing the year-to-date (YTD) total to $409 billion The $409 billion was equal to 2018's pace, although the composition was somewhat different this year. Following last year's record new issue CLO volume, that sector has seen a modest decrease y/y, while RMBS (notably, non-QM) has made up the difference.

ABS issuance reached $58 billion in Q3 2019, bringing the YTD total to $189 billion, up 1% at the end of September. Notably, auto related ABS issuance was up 10% in 2019 through September, led by robust volumes in lease and prime auto loan ABS. We're keeping our 2019 forecast for the sector at $245 billion ($240-$250 billion), as full pipelines in October should balance out the usual seasonal reduction in activity toward mid-December.

CLO new issuance came in at $25 billion in Q3 2019, down from $33 billion in Q3 2018. The YTD CLO new issuance stands at $90 billion, down from $101 billion last year (which set an annual record) at the end of September. CLO reset/refinance volume remains down about 70% y/y, with just $12 billion (YTD $36 billion) posting in Q3. We're keeping our new issue forecast steady at $110 billion and lowering our prediction for refinances and resets to $50 billion.

CMBS issuance reached $18 billion in Q3, flat y/y from Q3 2018, with about half of the volume coming in a busy September. We expect an active market in Q4 and reaffirm the $80 billion forecast that we published in January 2019. CMBS new issuance YTD is at $57 billion (as of Sept. 30), down just $1 billion from last year's reading. The slight decline is attributable to lower single-asset, single-borrower and small balance issuance, which, when combined, were down by about $4 billion YTD at the end of September. This was offset, however, by a $3 billion increase in conduit issuance.

Private label RMBS-related issuance reached $27 billion in Q3, up 38% from $20 billion in Q3 2018, with some $4 billion of the uptick attributable to an increase in non-QM issuance. YTD RMBS issuance was up by 15%, reaching $73 billion at the end of September. We're expecting $100 billion for the full year, with $25 billion from the growing non-QM subsector.

Canada

Canadian public term ABS (excluding covered bonds) issuance volumes for the nine months ending September 2019 were down by 20% to C$14.3 billion from C$17.9 billion for the corresponding period a year ago. This was due to lower credit card and unsecured ABS volumes, which declined to C$7.9 billion from C$12.2 billion in the first nine months of 2018. The auto ABS volume, however, remained steady at C$4.3 billion for the same period.

Of the C$14.3 billion in ABS issuance, 57% was cross-border transactions, led primarily by credit cards and auto loan ABS, compared to 50% as of September 2018. By asset class, credit card ABS cross-border issuance was down 15% to US$5.0 billion from US$5.9 billion for the nine months ending September 2018. Nevertheless, Canadian credit card ABS cross-border transactions accounted for about 27% of the total U.S. bank-credit card ABS volume as of September 2019, providing liquidity and investment opportunity to the U.S. market at a time of lower issuance from U.S. bank-card issuers. Encouraging also is that auto loans ABS cross-border transactions increased 3%, with issuance of US$1.1 billion for the first nine months of 2019.

Recognizing market volatility in 2019 has impacted issuers' funding plans for the nine months ending September 2019; thus, we believe Canadian ABS issuance volumes will not achieve our original forecast of C$20.0 billion in 2019. As such, we have revised downward our forecast to C$17 billion for 2019.

Europe

The third quarter of 2019 saw further settling of the European securitization market after an issuance shutdown earlier in the year, which was prompted by teething problems with the EU's new Securitization Regulation. Issuance has normalized even though several technical standards for the new regulations have not yet been completely finalized. That said, investor-placed volumes in the European securitization market were still down by 12% y/y for the first nine months of 2019.

Uncertainties over eligibility criteria for the "simple, transparent, and standardized" (STS) label have moderated substantially, as authorized verification agents have come online, facilitating a common understanding of the requirements. September was the first month in which more than half of investor-placed issuance carried the new quality label, bringing the STS volume up to 30% of the YTD total. There is some evidence of a return in investor demand from bank treasuries, for which only STS-labelled securitization exposures will count toward regulatory liquidity tests from April 2020.

However, the European Central Bank's (ECB's) swing back toward monetary policy easing could be a net negative for SF issuance. Rate cuts and renewed asset purchases may increase the relative attractiveness of SF for investors compared with other asset classes. However, the recent restart of the ECB's targeted long-term refinancing operations (the so-called TLTRO III) could dampen SF issuance, given the attractive terms of this central bank borrowing as a funding source.

Asia-Pacific

China

China's new securitization issuance recorded the first y/y drop for years in the third quarter of 2019, falling 8.7% from the same period one year ago. The YTD issuance remains 16% higher than 2018 due to the strong activity in the first two quarters, and the aggregate issuance amounted to Chinese renminbi 1,456 billion, or around $204.5 billion Favorable interest rate environments and rising loan origination in the consumer sectors continued to support new issuance, but the quick drop in RMBS and corporate receivables securitization brought down the quarterly numbers. Consumer receivables transactions, including auto loans, credit cards, and consumer loans, are balancing the trend. We are revising down our 2019 new-issuance projection to around $300 billion from the previous indication of $330 billion-$340 billion, due to the softening RMBS issuance and the depreciation of China currency.

Asset performance in retail receivables remained strong in the quarter, although we continue to see 2019 as a challenging year for some non-retail securitization transactions.

Japan

The pace of new issuance in Japan has been on par with that of last year so far in 2019. Approximately $41 billion was issued (excluding covered bonds) by the end of the third quarter in 2019. That compares with $40 billion over the same period in 2018. ABS and RMBS are the main asset classes in Japan, accounting for more than 95% of issuance so far in 2019. Meanwhile, the share of CMBS and CDOs is very small, as it has been over the past several years.

Australia

Total SF new issuance grew by 15% to US$21.7 billion from September 2018 to September 2019. More than 87% of this issuance came from RMBS, which reached $US18.8 billion over this period. ABS issuance has also been gathering momentum and makes up 13% of YTD 2019 issuance, up from 7% 12 months ago, reflecting increasing demand for non-RMBS assets. Non-Bank originators have dominated new issuance again in 2019, accounting for more than 41% of RMBS issuance as of September 2019. Despite the prominence of the non-bank sector, the playing field has evened out a bit more in 2019 with Other Banks and Major Banks contributing a greater share of total RMBS issuance than in 2018. The recent stabilization in property prices in major capital cities, lowering of interest rates, and removal of some macro prudential measures are expected to help lending growth, which has been subdued for some time. This, along with continued demand from both domestic and offshore investors seeking higher yields in a low interest rate environment, should help sustain the supply of RMBS new issuance.

Latin America

Total issuance in the SF segment in Latin America was $5.7 billion in Q3 2019 and $10.6 billion for the first nine months of 2019. Our new issuance forecast remains in the $11 billion-$13 billion range. As we previously expected, issuance in Brazil continues to grow at a double-digit rate, and we have observed renewed interest in new asset classes in Mexico, despite the weakening economy. However, the recent developments in Argentina have significantly increased the downside risk for rated entities in the sector, which could have a negative impact on new issuance. Trending assets are corporate repacks (mainly certificates of agribusiness receivables or real estate receivables in Brazil), followed by securitizations of loans originated by fintech companies in Brazil and Mexico, equipment leasing in Mexico, and RMBS and covered bonds in Brazil.