Subprime default spike lacks short interest
27 March 2017 London
Image: Shutterstock
US short sellers are yet to capitalise on the large rise in credit defaults in the auto loan and car manufacturing industries, according to IHS Markit.
In a research note on the uncharacteristic lack of activity, analyst Simon Colvin revealed that US subprime loan defaults recently climbed to the highest level since the financial crisis, but demand to borrow related stocks did not respond.
“Short sellers have proved to be some of the canniest investors when it comes to getting ahead of a large rise in credit defaults. Be it the energy slump last year or the real estate crash of the last decade, any surge in default rates from an industry over reliant on credit is sure to draw more than its fair share of shorting activity,” Colvin explained.
IHS Markit data showed that the majority of short interest that did exist was concentrated in the smallest of the three listed auto loan originators, such as Credit Acceptance.
“The recent spike in defaults hasn’t sparked much interest from short sellers as the demand to borrow Credit Acceptance shares has remained range bound between 10 percent and 12 percent of its shares outstanding for the last 12 months,” Colvin added.
Short sellers also failed to cash in on the Ford’s poor quarterly results, as demand to borrow its shares fell by more than 80 percent following a peak last summer.
In a research note on the uncharacteristic lack of activity, analyst Simon Colvin revealed that US subprime loan defaults recently climbed to the highest level since the financial crisis, but demand to borrow related stocks did not respond.
“Short sellers have proved to be some of the canniest investors when it comes to getting ahead of a large rise in credit defaults. Be it the energy slump last year or the real estate crash of the last decade, any surge in default rates from an industry over reliant on credit is sure to draw more than its fair share of shorting activity,” Colvin explained.
IHS Markit data showed that the majority of short interest that did exist was concentrated in the smallest of the three listed auto loan originators, such as Credit Acceptance.
“The recent spike in defaults hasn’t sparked much interest from short sellers as the demand to borrow Credit Acceptance shares has remained range bound between 10 percent and 12 percent of its shares outstanding for the last 12 months,” Colvin added.
Short sellers also failed to cash in on the Ford’s poor quarterly results, as demand to borrow its shares fell by more than 80 percent following a peak last summer.
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