How to Talk to Clients About Securitised Credit
Securitised credit represents a significant and well-established segment of the global fixed income universe, spanning both public and private markets. While government and corporate bonds remain the largest components of the bond market, securitised credit plays a crucial role in financing housing, consumer activity, and commercial real estate, while providing investors with access to diversified income sources.
When discussing securitised credit with clients, it can be helpful to frame the asset class as a spectrum of exposures, ranging from highly liquid, government‑supported instruments to more specialised, privately sourced credit. Each segment has a distinct risk‑return profile, shaped by underlying collateral, structure, and position in the capital structure.
Understanding the credit spectrum
Securitised credit can be helpful to position for clients as a bridge between public and private credit markets. It provides public-market access to pools of loans that are typically originated in private markets, allowing investors to gain exposure to underlying assets that may be less accessible directly.
As shown in the table below, securitised credit sits between traditional government and corporate bonds on one end of the spectrum, and private credit and whole loan strategies on the other. This positioning can help clients understand how securitised assets may complement more familiar bond exposures, providing exposure to different sources of income, diversification, and risk.
Framing securitised credit in this way can also help support conversations about relative value. Compared with corporate credit, securitised assets are typically backed by pools of underlying collateral and structured into tranches with varying levels of risk and return. Compared with private credit, they often exhibit greater liquidity and transparency, while still providing exposure to assets such as residential mortgages, commercial real estate loans, or consumer credit.
This spectrum based approach can help place securitised credit not as a niche or standalone asset class, but as an integral part of the broader fixed income universe – one that can play a flexible role in portfolios depending on income needs, risk tolerance, and market conditions.
Where securitised credit sits in the broader credit market
Who invests in securitised assets?
Securitised assets are held primarily by institutional investors. Different segments of the market appeal to different investors depending on their risk tolerance, regulatory constraints and return objectives:
- Central banks typically invest in high-quality securitised products, such as agency MBS, either to implement monetary policy or to support market functioning (e.g., the U.S. Federal Reserve), or to deploy excess reserves (for many non-U.S. central banks).
- Banks and insurance companies also tend to focus on senior tranches, using securitised assets to help meet regulatory capital and liquidity requirements.
- Investment managers participate across securitised markets, often focusing on liquid, higher-quality segments that align with mutual funds' daily liquidity requirements.
- Hedge funds and alternative managers tend to target lower-rated, subordinated tranches of securitised products or specialised securitised structures, seeking higher yields to achieve return objectives.
Demand across these groups is shaped by market conditions, regulatory frameworks and relative value versus other credit sectors.
How the securitised market has evolved
Today’s securitised credit market differs markedly from the one that existed before the 2008 global financial crisis (GFC). Since then, the market has undergone meaningful reform, resulting in tighter regulation, stronger underwriting standards, greater transparency, and more resilient structures.
Before the GFC, the non-agency RMBS market was dominated by loans made to subprime and near-subprime borrowers with weak credit profiles. As interest rates rose, many borrowers could no longer afford their mortgage payments, leading to widespread defaults. The resulting collapse in the housing market contributed to a global recession.
In the years that followed, regulation and lending practices became significantly more conservative. Subprime lending declined sharply and overall loan quality improved, particularly in the U.S. housing market. While U.S. securitisation issuance has continued to grow – supported by stronger investor protections – European issuance remains well below pre-crisis levels.
The value of securitisation
Overall, market reforms and stricter regulation have strengthened the foundations of today’s securitised markets, enhancing stability, investor confidence, and broader financial market resilience.
For investors, securitised credit can provide diversification beyond traditional corporate credit, attractive risk-adjusted yields and historically low default rates for senior tranches. For banks and loan originators, securitisation frees up balance sheet capacity, supporting additional lending to consumers, households, and companies.
More broadly, securitisation can help diversify funding sources, reducing systemic reliance on banks and channelling capital efficiently to productive uses. It also provides a flexible and customisable investment framework: issuers can tailor collateral and structures to their needs, while investors can access the asset class across a wide range of risk and return profiles.
Key takeaway for clients
Securitisation is a mature, well‑regulated financing mechanism that aligns the interests of borrowers, lenders, and investors. It supports economic activity, while providing investors with access to income-generating assets within diversified portfolios.
