One of the best investments Asset-backed securities (Bonds backed by consumer loans) returned about 10% through October.

“I don’t know if it will last but what’s happening now in terms of the American consumer, well, it’s downright un-American,” said Paul Norris, head of structured products at investment firm Conning (Manages a $20 billion portfolio). “We’ve had to throw out the playbook of everything we’ve learned about consumer behavior.” said Mr. Norris.

The securities lost almost 14% in March but subsequently returned about 21%, counting price changes and interest payments, bringing the annual figure to 10% through October, according to data from Citigroup. By comparison the far-riskier S&P 500 posted roughly 12% through Nov. 10.

"Given how dire the outlook was…we assumed things would be the same as we saw in 2008 and 2009—a 60% to 70% deterioration in losses,” said Rich Tambor, OneMain’s chief risk officer.

But thanks to massive government assistance and reduced spending amid the pandemic shutdowns, the expected surge of defaults never came.

LendingClub had projects returns on loans it made before March at about 4%. Loan write-offs at OneMain, which serves families with average annual incomes of around $50,000, fell back to pre-pandemic levels of around 5.2% in the third quarter of the year from 6.5% in the first quarter.

Issuance of new consumer loan ABS totaled $9 billion in 2020 through October, down from $13 billion during the same period last year.

Investor demand for consumer loans now exceeds supply, which has yet to recover to pre-pandemic levels, said Scott Sanborn, chief executive officer of LendingClub, which has been selling loans it makes directly to institutional investors. “We’re just trying to fill the orders of our investors.”

It is unclear whether consumer-loan payments will remain stable as months pass without additional government support.

Stimulus spending “created a little bit of a fog,” said Keith Ashton, co-head of alternative credit at $179 billion investment firm Ares Management Corp. Ares has selectively invested in new consumer ABS since March, but “we feel it is premature to jump into the sector wholesale,” he said.

Most governmental relief programs ended by September but loan delinquencies haven’t risen yet, according to OneMain’s Mr. Tambor. “We, like everybody else, are saying at some point the macroeconomy is going to start reasserting itself but so far we just haven’t seen it,” he said.

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Economics, Finance and Investing