GSFM’s Investment Strategist Stephen Miller speaks to Josip Zdrilic, Head of Credit Structure & Research at Payden & Rygel about the securitization sector within the fixed income market.
Josip describes securitization as a segment offering both fixed and floating-rate assets, typically within a 10-year yield curve. Unlike traditional securities with a single obligor, securitization involves a pool of obligors placed into a trust, providing diversification. Investors can choose from different capital structures, such as senior and subordinate notes, to match their risk preferences. Josip also highlights the sector’s diversification beyond mortgages, including consumer loans, auto loans, commercial mortgages, asset-backed securities, and corporate collateralized loan obligations. He discusses the sector’s resilience in the face of recent market challenges, such as COVID-19 and inflation, emphasizing the increased risk premia and attractive spreads. He outlines strategies for navigating uncertain economic conditions, focusing on shorter-duration assets and debt-friendly structures. Overall, the securitization sector offers investors opportunities for high credit quality and appealing yields in today’s market.
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