Wells Fargo & Co. (NYSE: WFC) Securities analysts said in a research note to investors on Monday that investors should buy subordinate bonds backed by credit-card payments as default rates and delinquencies fall.
Securities which are backed by credit card assets and rated BBB, the second lowest investment grade yield almost 2% more than similar high-rated bonds, said Wells Fargo & Co. (NYSE: WFC) in a July 16th research note. Spreads are not likely to narrow significantly under current credit and market conditions, but the lower-ranked bonds offer better yields without adding unnecessary credit risk, said the analysts led by John McElravey.
During the month of June, credit card charge-offs fell from 10.15% to 9.60% with delinquencies falling for the fifth-straight month to 3.75%. Outstanding credit card debt for the largest asset-backed issuers fell for the sixth consecutive month to $327 billion, down $3.8 billion from the month of June.
Sales of asset-backed bonds tied to credit card payments fell by 78% to $6 billion in 2010 compared to 2009 as banks cut their lending efforts and rely on deposits to fund new loans, according to data from Bloomberg.
Shares of Wells Fargo & Co. (NYSE: WFC) fell by 2.11% hitting $25.48 during mid-day trading on Tuesday.
