Rising Rates Raise Alarm Bells for Subprime Auto Market

Subprime auto loan rates have risen to 17%-22% this year as the Federal Reserve raises rates to fight inflation, increasing risks for lower-income households.

The subprime auto bond market remains strong, clearing almost $30 billion in deals this year, though below 2021-2022 levels.

If high rates persist, eventual reckonings in the auto market are likely, though the resilience of the economy has deferred distress so far.

Inflation eats away at lower wages, so the subprime market may indicate wider recession risks, though investors still demand little extra compensation.

Subprime auto delinquencies have ticked up from historic lows but remain around 5%, while investors seem confident in higher yields from the bonds.