焦點對談 — 考慮分散投資？選擇資產抵押證券

This is an edited audio transcript of the Talking Heads episode with David Favier

Daniel Morris: Hello, and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis on the topics that really matter to investors. In this episode, we’ll be discussing structured credit. I’m Daniel Morris, Chief Market Strategist, and I’m joined today by David Favier, Head of Structured Credit. Welcome David, and thanks for joining me.

David Favier: Thank you for having me. I’m thrilled to be here with you guys.

Daniel Morris: David, we think about what excitement we’ve had in the markets over the last several months. We saw the first reaction, generally an expectation of higher growth in the US at least. Therefore, higher policy rates conceivably from the [US] Federal Reserve. Since then, clearly that perspective has changed. We’ve seen a sell-off in equities, a rally in bond yields as growth seems to be slowing more than markets anticipated. To say nothing of the risk that we see now from tariffs. I guess we’re getting what we always thought we were going to get, which is volatility with President Trump. But in a world with that kind of volatility, you think about diversification in a portfolio. And that’s where structured credit comes into play. Why should investors consider securitised products in a broad fixed income portfolio? But before we tackle that question, for some of our listeners go into exactly what is securitisation? How does it work?

David Favier: I do believe securitisation can bring diversification into portfolios, but we have to explain first, what is an ABS. ABS stands for asset-backed securities. An ABS is a bond collateralised on the pool of loans. These loans are most of the time granted by banks that are issuing consumer loans, mortgage loans, credit card loans, and all these bonds are packed into a vehicle. And this vehicle is issuing tranches. We have credit protection between every tranche. When you are at the top of the capital structure, you have the most secured assets. And when you are buying a tranche at the bottom of the capital structure, it means that you have chosen to take the first or second risk, but you will have a higher yield, higher spread.

One of the features is the floating rate. Here we don’t have any duration. All the assets are floating rate notes. So, it might be good to have this type of asset as a diversification. But it’s also the collateral, the underlying of the loan, of the ABS we are managing. They are based on loans granted to households. We are not exposed to the big corporates that we can see in traditional fixed income. I’ve already said that we have a credit protection. Credit protection is a specific feature that you will have only in the securitisation market.

We all know what happened during the financial crisis – volatility and difficulties around liquidity. We have seen with the crisis in the UK in 2022, when asset managers were looking for cash, all these asset managers sold ABS. So, at the time of that crisis, we proved that our market is liquid.  

Daniel Morris: David, when we think about the evolution of the securitised product market, what changes then do you see coming in the market that can have an impact on the value of these investments?

David Favier: Just after the great financial crisis all regulators put rules to relaunch and enhance securitisation. STS stands for simple, transparent, and standardised. This was shown as a quality label. It was to restore confidence around securitisation. And it was seen by clients as a level of quality. It was used by the ECB.

With all these frameworks, we have seen roughly €145 billion of new issuance, which was a record. It means that investors are here to absorb the supply.

Daniel Morris: What is, in your view, the outlook for the market in securitised products? How do valuations look today? And where do you anticipate yield spreads going in the medium term?

David Favier: Let’s start with asset-backed securities. If you look at the AAAs, which are the largest supply in the market, I continue to see them as cheap. A few years ago, before Covid, or at the time when the ECB was involved in the ABS market, you were seeing spreads around 15, 20 basis points. Today, the market is running around 50.

I continue to believe that it makes value to have a look at double A and single A and Triple Bs [rated bonds]. Spreads are roughly in line with what we’re expecting for the future. I don’t believe they will widen when you see the small supply and the high interest and the money, we have in the system to invest in these assets.

The  picture is quite simple. We like the residential market, the consumer loan market, the auto ABS markets, because of the low volatility, because the level of delinquencies and arrears are quite low. We see value and we don’t see any defaults. Defaults are very low compared to the historical heights. So, we have reopened the door to reinvest to triple Bs, double Bs, even in the investment-grade spectrum because we are confident that the level of defaults [is] largely manageable by the structures we are able to invest for the portfolios.

Daniel Morris: Well, David, if I could summarise some of the key points you shared with us, we’re talking about ABS, asset-backed securities, and collateralized loan obligations, which [in] simple terms are bonds backed by collateral. You highlighted the diversification advantages that they bring to fixed income portfolios. You’re exposed to a different part of the economy. For example, households instead of corporates. And generally, they lack the duration risk that you can see in other types of fixed income. And when you looked at the evolution of the market over the years, and particularly since the global financial crisis, an increase in regulation, an increase in safety, hopefully for investors, and a big increase in liquidity. Well, David, thank you very much for joining me.

David Favier: It was a pleasure.

Daniel Morris: That’s it for this week’s episode of Talking Heads. If you would like more information about our capabilities and structured credit, please reach out to your BNP Paribas Asset Management contact or check out Viewpoint. Our website for investment insights at Viewpoint.bnpparibas-am.com.

We recommend subscribing to Talking Heads on your favourite podcast channel such as YouTube or Spotify. You’ll receive your podcast episodes every Tuesday afternoon. If you like Talking Heads, leave us a positive review and a nice rating. You’ve been listening to the BNP Paribas Asset Management Talking Heads podcast with me, Daniel Morris, and David Favier, Head of Structured Credit. Please do join me next week. Until then, take care.