Auto Loans inversely correlated with interest rates

I think that interest rates moderate in the coming months back to a ‘normalised’ level from which to work from, into the next cycle.

To position for this thesis, I could buy bonds, a bond ETF, treasury futures……

I’m thinking of expressing this (investment) view by looking at companies who provide automobile loans.

Perhaps those who are focused on sub or near prime credit risks?

Auto loans become more expensive as rates rise. Cars (new and used) are more expensive. Vehicle ownership is still desired.

But getting exposure to this idea through bank and credit unions is lost amongst their other business lines.

I’ll dig through a company such as Open Lending (LPRO.US). They help lenders in assessing risk to car loan applicants.

My interest was piqued when I overlaid the price chart of LPRO against the U.S. 2 year bond yield. High interest rates is bad for Open Lending’s business. What if the opposite occurred?

November 22, 2022

by Rob Zdravevski

rob@karriasset.com.au