As the fallout from the tightening in residential mortgage lending and sub-prime segment continues to unfold, RiskMetrics Group’s Financial Research and Analysis team continues to closely monitor the performance of credit card master trusts. The performance of these trusts, which hold credit card loans that are sold off to investors, can be an important bellwether in assessing consumer credit quality. Since November 2007, we highlighted a notable deterioration in credit quality across our survey group of credit card master trusts, which continued in December.

With Americans’ total revolving debt on the rise – most of it on credit cards – it is prudent to take note of the rate of delinquencies and default of credit cards loans. The Wall Street Journal recently relayed our analysis of more than $200 billion of credit-card loans that are sold off to investors by major card issuers such as Citigroup, Capital One Financial, American Express and J.P. Morgan. This analysis showed that in December, an average of 7.6% of credit-card loans were either at least 60 days delinquent or had gone into default, up from 6.4% a year earlier. A further sign of weakness in consumer credit quality can be gleaned from this study of 14 large pools of credit-card assets, where we found that delinquencies and bad loans had jumped by as much as 19% in the last six months of 2007.

We will continue to monitor consumer credit quality though our analysis of credit card mast trusts, which in addition to its potential impact on consumer spending, can affect the broader macro economy.