Investors want consumer loan-backed deals.

Issuance of such deals shot up to $13.55 billion this week in a clear sign that the Federal Reserve's program to kickstart the asset-backed securities market is on its way to success despite initial hiccups.

Clustered around the central bank's third loan application deadline Tuesday for its Term Asset-Backed Securities Loan Facility, or TALF, issuers with credit card, student, equipment and auto loans tapped the market, often because investors told underwriters they wanted the offerings, according to market participants.

Issuers in three of the deals increased the size of their offerings from initial estimates and most sold with tighter risk premiums than expected.

Hedge funds and money managers have been among those buying TALF-eligible debt in recent days.

"The issuance, the upsizing and the tightening of spreads should prove beyond a doubt that TALF is working and as long as the well does not run dry, investors will come," said Dan Nigro, an asset-backed securities portfolio manager at Dynamic Credit Partners in New York, which has $5 billion of assets under management.

Solid demand allowed JP Morgan & Chase Co. (JPM) to sell a $5 billion credit card loan-backed deal in one day - an usually short period of time for such securitizations. The triple-A bonds sold at 155 basis points over the one-month London interbank offered rate. That's nearly a full percentage point below the average for credit card-backed bonds at the end of April, according to data from Barclays Capital.

On Tuesday, Volkswagen AG (VLKAY), Honda Motor Co. (HMC) and CNH Global NV (CNH) increased the size of their deals and sold at tighter-than-expected risk premiums.

"TALF provided some points to base pricing on," said Gyan Sinha, a partner at hedge fund KLS Diversified Asset Management, which bought TALF-eligible bonds last month and has applied for loans to buy more this month.

Investors had given a lukewarm welcome to TALF when it was launched in March, citing concerns over tedious documentation and the possibility of legislative meddling. The magnet of nonrecourse loans - which leave the central bank, not investors, on the hook for the bulk of potential losses - has clearly contributed toward getting over some of these issues.

This funding period is a "solid step forward," said Chris DeReza, a researcher and manager at Informa Global, adding the expectation now is for June to be "an even bigger month."

Though the ultimate goal of the program is to lower lending rates for consumers, it will take some time before that is accomplished, market participants pointed out.

That said, the cost of debt is already going down, Sinha remarked, noting mortgage rates fell after the Treasury swooped in to support that market.

In the asset-backed market, too, "lenders will eventually pass on the benefits to consumers," he said.

-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com