Securitized markets remained active in August, with strong year-to-date issuance, evolving consumer credit trends and continued pressure in select areas of commercial real estate.

Asset-Backed Issuance Remains Strong

Asset-backed securities (ABS) issuance slowed to $27.2 billion in August from a $33.8 billion monthly average over the prior four months. Despite the seasonal slowdown, 2026 issuance reached $256.5 billion through August and remains on pace to surpass 2024 and 2025 levels. Auto ABS dominated August activity, accounting for 67.5% of issuance.^1,2

Consumer credit trends were mixed but generally constructive. Credit card ABS issuance reached $12.3 billion year to date, while charge-offs declined to 1.90% in August, remaining below 2% for a second consecutive month. Auto delinquencies remain highest among lower-income borrowers, though recent deterioration has become more consistent across income groups.^1,3

Commercial Mortgage-Backed Delinquencies Remain Elevated

Commercial mortgage-backed securities delinquencies edged down one basis point to 7.85% in August but remained 56 basis points above August 2025 levels. Office delinquencies increased to 12.00%, while lodging and retail also moved higher. The five largest newly delinquent loans included office properties in Chicago, Los Angeles and Washington, D.C., as well as a New Orleans hotel.⁴

Non-Agency Residential Mortgage-Backed Issuance Continues to Grow

Non-agency residential mortgage-backed securities issuance totaled $19.6 billion in August and reached $152 billion year to date. The market remains on pace to surpass 2025 issuance, though higher rates could temper activity. Non-qualified mortgages continued to represent a significant share of issuance.²

Fed Chair Warsh followed through on his anti-inflation rhetoric on Wednesday, as the Federal Open Market Committee voted unanimously to increase the federal funds target rate by 25 basis points to a range of 3.75–4.00%. The dot plot of policymaker forecasts, meanwhile, suggests one more hike is likely before year end. After easing slightly throughout the day, the 10-year Treasury yield moved higher following the announcement to finish above 5%; the two-year note followed a similar trajectory. The dollar strengthened, and equity markets fell.¹

The hike reaffirms our long-held view that we are in a higher-for-longer interest rate environment and temporarily restores our faith in the Fed as a staunch inflation fighter. Given the political costs that may accompany the move, however, it remains to be seen whether we have entered a prolonged hiking cycle or if this hike represented a one-off that will be followed by more “data-dependent” decisions moving forward. This uncertainty combined with Warsh’s resistance to forward guidance suggest to us that the bond market is likely to remain volatile.

As we have said before, raising front-end interest rates is not a magic bullet for combating inflation. While excess demand was a key driver of the post-Covid spike in inflation and responded well to higher interest rates, we believe today’s inflation is attributable primarily to supply disruptions. This is perhaps most evident in the energy market, where prices are likely to remain elevated unless the Iran war comes to a successful conclusion in the coming months. Consumers facing higher direct energy prices are also being hit by the higher costs associated with the trucking of everyday goods; costlier imported fertilizer also may push food prices higher, though with a lag.

Meanwhile, the Fed has no obvious mechanism to address the major issues plaguing the US economy; the remedy resides within the executive and legislative branches of the government. While an end to the Iran war likely will help reduce energy-related inflation in the near term, the long-term impact of the ever-increasing deficit will persist without concerted action. The markets need proper remedies for a long-term cure, in our view, not a short-term pain killer.