- Fixed Income Portfolio Manager
Skip to main content
- Insights
- Capabilities
- Funds
- Sustainability
- About Us
- My Account
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
In recent months, significant investor concerns have arisen around persistently high inflation, the specter of rising US interest rates, and the potential for economic and/or market disruptions from these risks. Geopolitical escalations in Russia and Ukraine have added yet another layer of complexity to financial markets and the macroeconomic environment. We’d like to highlight four key themes that we believe may support the securitized credit asset class against this challenging backdrop:
By way of historical context, we looked at recent US Federal Reserve (Fed) rate-hiking cycles to see how securitized credit assets have performed relative to other major fixed income sectors during rising-rate periods. In the absence of an all-inclusive market index to use as a proxy for the securitized space, we instead focused on various subsectors that we consider to be representative. As shown in Figure 1, the securitized subsectors generally performed well in rising-rate environments, producing positive total returns.
While credit spread levels have compressed meaningfully from those reached at the onset of the pandemic, we believe the securitized asset class continues to offer an attractive risk/return profile compared to many other fixed income spread sectors. Indeed, many securitized subsectors may benefit from rising inflation and interest rates in the coming months.
While the current market sell-off (driven by the Russian invasion of Ukraine) makes the entry point to the securitized asset class more attractive, we remain confident in its fundamentals. And from a longer-term strategic standpoint, we believe the asset class can play a structural, diversifying role in many investor portfolios.
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
FOMC: Stable policy amid market volatility
The Fed is holding steady amid market turmoil. See our quick notes on the FOMC's March policy statement, forecasts, and the Fed chair's press conference.
Agency MBS key questions for 2024
Is there room for mortgage spreads to tighten further? Brian Conroy and Joseph Marvan examine this and seven other questions that will be significant for the agency MBS market in 2024.
5 reasons to be active in fixed income
Actively managed fixed income portfolios have several distinct advantages over passive approaches.
Too much focus on Fed, not enough on fiscal
Current US fiscal and monetary policy stances argue for risk taking in fixed income.
Bond Market Outlook
In this collection fixed income experts across our platform highlight risks and opportunities for discerning fixed income allocators looking ahead to the second half of 2023.
Macro implications of the AI revolution: is the market right?
Macro Strategist John Butler sets out an initial framework to help answer key questions about the potential macro impact of artificial intelligence.
The “cleanest dirty shirt” now has too many stains
Fixed Income Portfolio Manager posits that US fiscal profligacy will change the game for asset allocators.
How to interpret the Bank of Japan’s latest policy shift
We analyse the wide-ranging investment implications of the Bank of Japan's latest policy shift.
US loses its AAA rating (again)
US Macro Strategist Michael Medeiros analyzes Fitch's recent downgrade of US credit quality and explores the bigger issues at play.
Credit market outlook: Partly sunny with a chance of good value
In his 2023 credit market outlook, Fixed Income Portfolio Manager Rob Burn highlights some potentially attractive opportunities in the wake of this year's market sell-off.
URL References
Related Insights
The “cleanest dirty shirt” now has too many stains
Continue readingBy
Brij Khurana