We believe the current market environment for securitized credit is attractive. Today’s low mortgage rates and limited housing inventory have contributed to robust home sales and rising prices, while historically high savings rates and low debt servicing costs have bolstered consumer balance sheets. Office re-openings and strong travel activity have further supported a recovery in commercial real estate.

Securitized credit, which involves the packaging of cash flows from different sources including mortgages, credit cards, auto loans and other types of receivables into marketable securities, offers many potential benefits to fixed income investors who are seeking to diversify their traditional unsecured credit risk exposure and source alternative forms of income and total return. Investors may also reap potential benefit from improved underwriting standards over the last decade.

The US securitized market today is approximately $7.5 trillion (source: Bloomberg) in size and is comprised of residential mortgage backed securities (RMBS), asset backed securities (ABS) and commercial mortgage backed securities (CMBS). Residential mortgage credit, which is comprised of legacy RMBS (subprime, Option ARM, Alt-A) Prime, Credit Risk Transfers (CRT) and Jumbo mortgages, historically offers very attractive diversification benefits given it’s low-to-negative correlation with most traditional liquid fixed income assets (see table below).

When compared to most corporate credit portfolios, residential mortgage credit has historically exhibited less downside risk while producing a higher Sharpe ratio. This is particularly true when compared to both investment grade and high yield corporate bonds.

MacKay Shields Global Fixed Income Team’s philosophy of eliminating uncompensated risk while seeking diversified sources of return makes residential mortgage credit an attractive opportunity set. Even diversifying up to 30% of a corporate allocation (comprised of an 80% investment grade, 20% high yield mix), has shown to produce a better risk-return profile

For more information on MacKay Shields securitized credit capabilities, please reach out to
your MacKay Shields contact or John Akkerman