Demand for securitized credit remains strong. Indeed, we expect the currently addressable US$1.3 trillion securitized credit market available to European investors to continue to grow; driven by high-quality fundamentals, low correlation to traditional fixed income, predominantly floating-rate exposure and a spread premium that has historically compensated for structural nuance rather than inferior credit quality.
What is securitization?
Securitization is the process of pooling individual assets and using the cash flows they generate to issue tradable bonds, known as asset-backed securities. Securitization fulfils two purposes:
- It enables originators – banks and other lenders – to diversify their funding sources, and redeploy freed-up capital into new lending, a key process for the real economy to function. They do this whilst retaining meaningful economic risk to ensure interests remain aligned.
- It provides investors with access to diversified, real economy cash flows such as mortgage payments, consumer credit, and corporate loans which would otherwise be inaccessible or illiquid.
