Over the last 5 years, total arrears by non-bank lenders have consistently outperformed major bank, regional bank arrears and the SPIN index.
This fact generally tends to surprise end investors, in fact it’s something that many fixed income investors seem to be unaware of. It seems that the market instinctively wants to think of bank risk as good and non-bank risk as bad.
Decomposition around the numbers starts to tell the story of why non-bank prime risk seems to outperform.
If we want to compare relative performance, we must make this comparison within more specific product types – for example, comparing prime bank loans to prime non-bank loans. When we do this, we can start to get a clearer sense of how various issuers perform.