Low delinquencies lift card-backed debt The strong performance of securities backed by credit card balances this year is underpinned by near-record low delinquencies among borrowers, says a new report by the rating agency Fitch. US consumers are also paying off card debt at close to record levels, suggesting the improved credit quality is likely to be maintained, at least in the near future. Credit card asset-backed securities (ABS) have proved a popular purchase for investors seeking better returns than are available on US Treasuries and mortgage securities. Borrowers" balances are pooled by lenders into "master trusts," which are the issuers of the debt securities. According to research firm Dealogic, investors have snapped up $32bn of credit card ABS so far this year, more than three times the amount sold in the same period in 2011. The price investors are willing to pay for the securities has also soared. The yield on credit card ABS, which goes down as the price goes up, has narrowed to 35 basis points more than the yield on US Treasuries, compared with 93 basis points at the end of last year. Fitch says the improved credit quality of the master trusts is giving investors confidence. "After the crisis, lenders made it so much harder to get a credit card," said Herman Poon, analyst at Fitch. They have cleaned up the trust and cleared out their bad customers. Now, as the economic conditions improve slowly, a lot of the people who have held on to their credit cards have the ability to pay back a little bit more. Charge-offs, card balances that lenders have written off, stood at 4.5 per cent in the third quarter of 2012, according to Fitch's index of credit card ABS-issuing trusts. That is a drop from 5.2 per cent in the second quarter and the lowest quarterly level since the start of 2007. Balances that were more than 60 days delinquent stood at 1.8 per cent at the end of September, down from 2 per cent in the second quarter and the first time since Fitch created the index in 1991 that the figure has been below 2 per cent. Delinquency rates have improved for 32 straight quarters, the rating agency said. Monthly payment rates, reflecting the proportion of balances that borrowers pay back each month, hit an all-time high of 23 per cent in September. "The rate of decline in delinquencies and charge-offs has slowed over the past couple of months, a trend that we think is likely to continue," Joseph Astorina, a strategist at Barclays, wrote in a note to clients. We do not expect more than seasonal increases in bank or retail card delinquencies as we cruise through autumn.