Negative ratings persist for global structured finance sectors in the third quarter, according to Fitch. The trend reflects the tentative nature of the global economic recovery and rising delinquencies. However, many EMEA and US non-mortgage sectors continue to demonstrate a good level of rating stability and are expected to remain resistance to downgrades, particularly at the highest rating levels.

In the US, Q309 saw a dramatic increase in downgrades in the RMBS, CMBS and CDO sectors, reflecting the cumulative effects of the economic and financial market conditions experienced over the past year. Additionally, negative rating actions were the result of adjustments to Fitch's base-case loss assumptions based on recent data for certain sectors.

However, negative rating actions for the core US consumer assets remained minimal in Q309. While asset performance has been negatively affected by economic conditions, most notably increasing levels of unemployment, this year will likely see significantly fewer downgrades than 2008 in core consumer as well as commercial asset types. Meanwhile, Latin American structured finance ratings have been performing well, reflecting the strength of the future flow asset class and the stable political and economic climate of the region.

In Europe, performance in UK credit card ABS continues to worsen due to historically high charge-off levels during the last six months. In Spain, deteriorating economic conditions continue to heavily impact consumer ABS transactions as rising delinquencies and defaults lead to reserve fund draws for many transactions.

Andy Brewer, senior director of EMEA structured finance performance analytics at Fitch, says: "Year-to-date 2009 EMEA structured finance downgrades already exceed the level reached for the whole of 2008. However, significant repayments in the ABS and RMBS sectors resulted in a small number of upgrades too during the last quarter."

In Asia-Pacific, negative rating action for the quarter was concentrated on Japanese CMBS, with 46 tranches of Japanese CMBS remaining on rating watch negative. Alison Ho, director of performance analytics for Asia Pacific structured finance at Fitch, explains: "The most significant rating actions in Asia during Q309 were the downgrades of over 40 classes of Japanese CMBS, reflecting Fitch's negative view of the Japanese commercial real estate market. This process is continuing in Q409, and includes the downgrade to D of one Japanese CMBS tranche."

Over 50 publicly rated Australian RMBS tranches were also downgraded as a result of Fitch's changed assessment of Genworth Financial Mortgage Insurance, a provider of mortgage insurance. Despite these downgrades, the majority of tranches rated in Asia Pacific continue to perform in line with expectations and most rating actions in the quarter were affirmations.