NEW YORK - Underwriters for Toyota Auto and Ally Master Owner Trust asset-backed offerings on Thursday launched larger-than-expected auto sales at tighter spread levels as investors chased supply, market sources said.

Toyota Auto Owner Trust's $1.25 billion auto ABS deal was increased from a $775 million size as interest grew in the offering. The deal's AAA-rated one-year notes were launched at a spread of 13 basis points over Eurodollar swap futures, compared with earlier price guidance of 15 to 20 basis points.

Its AAA-rated two-year notes were launched at a spread of 15 basis points over Eurodollar swap futures, versus earlier guidance of 18 to 20 basis points, while its 2.86-year AAA-rated notes were launched at a spread of 18 basis points over interpolated swaps, compared with earlier guidance of 20 to 25 basis points, market sources said.

JPMorgan Securities, Barclays Capital and Bank of America Merrill Lynch are lead managers for Toyota's sale, which is expected to price later today, market sources said.

There was solid appetite for Toyota and Ally deals. Both were increased in size and saw spreads tighten before launching, one bond investor said. The auto segment continues to be the driving force behind supply.

Among other sales launched on Thursday, Ally Master Owner Trust was selling a larger $703 million sale of auto securities that grew from an initial size of $350 million, given the solid demand from investors.

The deal's largest $450 million AAA-rated 2.94-year tranche was launched at a spread of 115 basis points over interpolated swaps, compared with earlier guidance of 125 basis points, market sources said. Ally's offering included smaller AA-rated, A-rated and BBB-rated issues that launched at spreads of 175 basis points, 215 basis points and 275 basis points over interpolated swaps respectively, market sources said.

Barclays Capital, Citigroup and Credit Suisse are lead undewriters for Ally's auto deal, sources said.

The auto ABS segment has led issuance in the asset-backed market this year, comprising some $18 billion of the $35 billion of securities sold to investors.

The auto segment has kept up with issuance expectations. Auto sales have been robust and consumer performance in this area has been greater than expected, said William Bemis, ABS portfolio manager at Aviva Investors.

Still, demand for securities continues to outstrip available supply. The credit card segment, which also comprised a large portion of issuance in previous years, has totaled just $2 billion this year amid sweeping changes to the securitization landscape.

A tougher regulatory and legislative environment, combined with new accounting rules and tighter lending standards, have all worked to clamp down on credit card issuance.

Issuers sold some $69 billion of auto securities and $49 billion of credit card securities with some help from the Federal Reserve's emergency loan program in 2010. (Editing by Jan Paschal )