Securitized products offer safe alternatives to Treasuries, says Janus Henderson strategist

investmentnews.com:

The market for U.S. Treasuries may be the largest, safest and most liquid in the world at more than $24 trillion.

But securitized fixed-income markets totaling over $12 trillion are nothing to sneeze in the current economic environment, with attractive yields, highly diversified products and a troubled history that’s now deep in the past, said John Kerschner, head of U.S. securitized products at Janus Henderson Investors.

Securitized markets are basically mortgages, commercial mortgages and asset-backed securities. Like the rest of the bond world, securitized products suffered last year as a result of rising interest rates, redemptions and recession worries.  

That recession has been staved off so far in 2023 because of better-than-expected economic growth, high employment and a resilient consumer. Those three factors have also enabled corporate and personal debts like mortgages to be paid, which has caused the performance of securitized products to be better than expected, allowing spreads to tighten.

Kerschner, for one, believes the good times may not be as good for the consumer going forward given the toll the Federal Reserve’s rate hikes are taking on them. That said, he thinks that toll is being taken slowly and that the securitized markets, which have tightened a bit this year, could still tighten further, with a healthy income stream to boot.  

“We have many products that are floating rate and as the Fed raises interest rates, that actually increases the yield or the coupon that investors are getting. And so as long as the underlying economy is able to weather these Fed interest-rate hikes, that means the securities and the yield and the income people are getting from the products that we are offering investors is