LoanStreet Monthly Newsletter — May 21, 2025
This month we are excited to present our special guests, Yonah Sturmwing from Alliant Credit Union and Nick Makarov from Octane Lending. Instead of our usual monthly write-up, our deep-dive is in the form of a webinar. The webinar took place on May 15th and you can view the recording and transcript here. Check it out to learn about new and unique opportunities within the lending space.
Below, we will start with a recap of an active economic news cycle and share our observations on loan trading.
Enjoy, share and please comment below!
LoanStreet Market Commentary
April started with an escalation of tariff tensions on so-called Liberation Day, which caused Treasury yields and the stock market to drop. The threats of tariffs have since been intermittently walked back with pauses and negotiations taking place. Treasury yields continue to be volatile with 10 bps moves becoming the norm. The stock market has mostly recovered from the losses it experienced on Liberation Day.
While tariff tensions have eased, the concern is that the volatility brings uncertainty and will end up negatively impacting the US economy by making it more difficult for companies to plan for the future. This uncertainty could result in fewer hirings and therefore less consumer spending. Typically the Fed might consider cutting rates in such an environment but the other side of the coin is inflation, which might reaccelerate should tariffs go into place.
When it comes to economic data, the soft data is pointing to a different picture than the hard data. Soft data such as sentiment and expectation surveys, point to a consumer who is concerned about their future employment prospects and worried about inflation. One such gauge of soft data is the Consumer Confidence Survey, which has dropped to a 13-year low. Hard data, such as inflation and job reports, suggests the economy continues to be in a good place. The April jobs report came in at 177k, well above the 138k which was expected. The PCE Price Index also showed progress on inflation, with headline and core PCE showing no change MoM. Lastly, the consumer continues to spend with the latest reporting showing spending is up 0.7%, above the 0.5% which was expected.
The divergence between soft and hard data will be important to monitor. The hard data provides a factual basis for analysis as it depends on actual numbers that have been realized, while the soft data offers valuable insight into the sentiment surrounding the economy.
Loan Trading Trends and Implications
Participation activity remains robust with strong sell-side supply matched by continuous buy-side demand for assets. As their loans continue to find buyers, some sellers have started to become aggressive on pricing, in some cases pushing yield levels below where the market is able to tolerate them. Further, many sellers are pushing for higher premiums, which introduces prepayment risk for the buyers, making it tough to find sufficient buyer demand especially at thinner margins over the risk free rate. Oftentimes a better strategy is for the seller to share in the prepayment risk by charging a higher servicing fee instead of a higher premium for the equivalent yield, this way the buyers aren’t penalized should loans prepay faster than expected. For sellers who wish to maximize premium, the participations need to be offered at higher yields and wider spreads, given the associated prepayment risk for the buyers.
In the face of slowing loan origination volumes and strong demand for participations, buyers are left with tight spreads and high competition for pools. Most buyers are still steering towards super prime auto, especially direct, where spreads are the tightest. For buyers who wish to generate higher returns, turning towards unsecured, solar or even near-prime auto, will meet those higher return goals. After adjusting for losses, these asset types offer higher returns compared to super-prime auto. Buyers who wish to continue to purchase high quality auto, should be ready to pay up for it in the form of lower yield.
Deep Dive: Thinking Outside the Lending Box
This month the deep-dive is in webinar format, with two industry experts. Use the link below to tune in to our conversation with Yonah Sturmwing from Alliant Credit Union and Nick Makarov from Octane Lending as we explore unique lending opportunities.
Webinar → Expanding Loan Access: Exploring CRE and Consumer Lending Opportunities
Monthly Economic Data Summary
- Based on the 4/30/2025 report, the PCE gauge of inflation was flat MOM and up 2.6% YOY, both in line with estimates.
- From the same report, core PCE, which excludes food and energy, was also flat MOM and 2.6% YOY. YOY came in as expected while the MOM was below the 0.1% which was estimated.
- On 5/13/2025 we received the latest CPI gauge of inflation, the headline was an increase of 0.2% MOM while the YOY was up 2.3%, both 0.1% below estimates.
- The latest job report for April showed a 177k increase in nonfarm payrolls, above the 138k which was estimated.
- The latest used-vehicle Manheim Market Report for mid-May showed a rise of 4.4% from a year ago.
- The Case-Shiller home price index showed national home prices increasing MOM by 0.4% while increasing YOY by 3.9%. These are lagging data and reflect the CS indices for 02/25.
- Based on the CME market watch tool, the expectation is for the first rate cut of 2025 to happen in September with a 33% chance of a July cut. A month ago the first cut was projected for June.
This article was authored by Matt Rudzinski, VP of Capital Markets
For more market commentary and to learn more about LoanStreet’s solutions, visit www.loan-street.com
Disclaimer
LoanStreet is not a Registered Exchange, Financial Planner, Investment Adviser, or Tax Adviser. The information provided herein is for general informational purposes only, and does not, and is not intended to, constitute legal, financial, investment, or tax advice.