Active Management, Uncertainty May Amplify Opportunities for Securitized Assets

In 2025, fixed income markets are thriving with attractive starting yields and the prospect of declining interest rates, delivering strong returns across sectors. The Bloomberg U.S. Aggregate Bond Index has risen over 3.5% YTD, with securitized markets offering higher yields than their historical averages. Agency residential mortgage-backed securities (RMBS) stand out for their combination of high quality and yield, appealing in today's uncertain economic environment.

Non-agency RMBS have improved credit profiles post-Global Financial Crisis, providing additional spread benefits despite carrying credit risk from homeowners. In commercial mortgage-backed securities (CMBS), selectivity is crucial as varying property sector performance presents both risks and opportunities.

Asset-backed securities (ABS) tell a nuanced story; while traditional consumer ABS face challenges due to economic pressures on lower-income consumers, business-oriented ABS like those linked to mortgage servicing rights and data centers offer compelling prospects due to wider spreads. Overall, the current environment in securitized markets offers promising investment opportunities for flexible portfolios managed actively amidst high yields and wide spreads.