ABS Markets: From Collateral to Capital Markets

Originally published in 2025 after the European summer break. Expanded and updated in October 2026.

When ABS issuance began picking up again after the summer period, what interested me was not simply the increase in deal activity.

It was the range of collateral returning to market.

Asset-backed securities can finance familiar pools such as auto loans and consumer receivables, but securitisation can also be applied to more specialised cash-generating assets. That flexibility is central to the asset class.

What an ABS actually does

At its core, securitisation takes a pool of exposures and transforms their cash flows into securities.

The underlying borrowers make payments. Those cash flows enter a transaction structure. Investors buy different tranches with different priorities in the waterfall.

The senior securities are paid before junior securities. Losses generally travel in the opposite direction.

That simple ordering creates different risk-return profiles from the same underlying collateral.

Why collateral matters

The label “ABS” is less informative than understanding what sits underneath it.

A pool of prime auto loans behaves differently from unsecured consumer credit. Equipment leases behave differently from residential mortgages. Specialised receivables may depend on entirely different contractual, operational or residual-value assumptions.

Analysis therefore begins with the assets: default probability, recovery, prepayment, concentration, seasoning and cash-flow timing.

Then comes the structure: subordination, excess spread, reserves, triggers and other forms of credit enhancement.

European issuance regained momentum

The broader European securitisation market remained active beyond the initial post-summer observation. AFME reported €252.3 billion of European securitised issuance in 2025, up 3% from 2024, with €156.3 billion placed with investors.

ABS issuance itself increased year on year, while CLOs, CMBS and SME securitisation also recorded growth.

That does not mean every segment behaved the same way. It reinforces the point that securitisation is a financing technology used across multiple forms of collateral.

Why issuers use securitisation

For originators, securitisation can diversify funding and transfer credit risk beyond the banking system.

For investors, it creates access to cash-flow pools that may otherwise remain on bank or specialty-finance balance sheets.

And for the broader financial system, it can connect private origination with institutional capital.

An investment perspective

What makes ABS particularly interesting to me is the combination of fundamental credit analysis and structural analysis.

Two pools with similar expected losses can produce very different securities depending on leverage, subordination, triggers and the distribution of cash through the waterfall.

The relevant question is therefore not merely whether the underlying borrowers are good credits.

It is how collateral behaviour interacts with the structure when the assumptions are wrong.

That is where securitisation becomes more than a funding mechanism — it becomes an exercise in allocating risk.