Securitised assets in the US offer diversification benefits in a marketplace that, following post-financial crisis regulation, offers attractive yields for its high quality nature.
The US securitised universe is the dominant market globally and far outstrips its European counterpart, with a greater breadth of deal types and a broader investor base.
When blended into LDI portfolios there is opportunity to enhance collateral waterfall resilience while improving risk/ return dynamics.
What are the benefits of securitised assets?
Diversification
The securitised universe covers a multitude of sub-sectors including: residential mortgage-backed, both non-agency and government-sponsored enterprise (GSE) or agency; commercial mortgage-backed; and asset-backed securities involving a range of receivables from student loans and auto loans to credit card debt. In addition, collateralised loan obligations (CLOs) provide exposure to pools of corporate debt typically aimed at small- to mid-market companies.
Such variety means there is a broader range of economic drivers (the housing cycle, consumer sentiment) versus traditional corporate bonds and their business cycle sensitivity. At a security level, exposure to a deep asset pool offers greater diversification of idiosyncratic risk relative to the issuer risk of a single corporate bond.
Higher quality, higher yields
The global financial crisis (GFC) fundamentally transformed the securitisation market. The regulatory response post-GFC brought substantial reforms that lead to significant improvements in security and quality standards and ultimately drove greater investor protection. The 2010 Dodd-Frank Act introduced risk retention requirements, mandating that originators retain some form of credit risk in the deal. This created a strong alignment of incentives. Enhanced disclosure requirements now provide much more detailed information about underlying assets, including loan-level data and standardised reporting formats.
These reforms have delivered tangible benefits in terms of tighter underwriting standards and higher asset quality, along with more rigorous income verification, improved borrower qualification criteria, and generally lower loan to values (LTVs), promoting better affordability.
In addition to rising asset quality, there are also stronger structural protections and credit enhancement within securitisations to help minimise credit losses – for example, senior tranches will typically be significantly over-collateralised.
Despite the high quality of the asset class, securitised credit typically offers a spread premium over similarly rated corporate bonds. This rewards investors for the complexity of undertaking asset pool quality analysis and understanding the details of each deal structure. Typically, the asset class must be researched by specialist analyst teams.
The spread premium also exists in part due to some of the inherent market inefficiencies of the asset class. The securitised market is more segmented than corporate bonds, with different investor types targeting different market segments (based on risk/return appetite or regulatory treatment – especially the capital charges for banks and insurers). This can create relatively less competition for pricing, allowing for wider spreads.
There is an element of additional reward premium for the negative convexity risk of some securitised assets, typically residential mortgage-backed securities (MBS) that allow for early repayment: when rates fall, prepayments accelerate and therefore the life of the security shortens. This reduces the total income received, while duration can extend when rates rise. This opens a rich relative value opportunity set where, based on proprietary analysis of expected prepayment behaviour, it is possible to identify attractively priced securities and harvest some of this risk premium.
Given the mix of higher quality and higher yields on offer, securitised assets have historically outperformed comparable corporate credit, both on an absolute return and risk-adjusted basis.
Figure 1: US securitised sector performance versus high grade US corporates and treasuries
Source: Bloomberg, ICE, Citi, Columbia Threadneedle, as of 30 September 2025. Based on total return index data in USD terms. CLO: Collateralised loan obligations. ABS: Asset-backed securities. CMBS: Commercial mortgage-backed securities. MBS: Mortgage-backed securities. Cons: constrained. All data annualised.
Lower market sensitivity
Most securitised assets typically have a weighted average life of three to six years. Therefore they have a generally lower spread duration sensitivity versus similar-rated corporate bonds, where issuance typically pools around seven to 10 years (and has been increasingly termed out as issuers take advantage of the compressed spread environment).
In addition, many securitised deals (and especially CLOs) offer floating-rate coupons, eliminating interest rate volatility. The combination of lower rate and credit sensitivity has historically driven attractive risk-adjusted returns for senior tranche securitised assets versus corporate bonds in times of market stress (Figure 2). The floating structure has also resulted in a lower correlation to traditional fixed income sectors, and especially versus typical LDI portfolios – a useful feature in some collateral resilience scenarios.
Figure 2: US securitised sector performance versus high grade US corporates and treasuries
Source: Bloomberg, ICE, Citi, Columbia Threadneedle, as of 30 September 2025. Grey bars on the chart represent the ‘shocks’ listed in the table from left to right. Based on total return index data in USD terms. Period: seven years ending 30 September 2025. SVB: Silicon Valley Bank. Securitised sector blend = equal-weighted return of the five securitised sub-sectors analysed in Figure 1.
How does the US universe compare to Europe?
The US is the dominant securitised market globally, accounting for close to 90% of outstanding issuance (Figure 3 top). The market-cap of US assets is around $15 trillion, versus around $1.5 trillion in Europe. A key differentiator in the US is the presence of GSE or agency MBS deals that underpin the asset class from a liquidity and flow perspective. Overall, US assets tend to have higher liquidity, supported by a larger investor base and more frequent issuance.
In non-agency sectors, the greater breadth of deal types in the US is clear – with securities that provide exposure to an array of consumer sectors, commercial deals and a deep economy of smaller- to medium-sized businesses that underly the CLO industry (Figure 3 bottom). Geographic diversification can also be significant, versus many country-specific European structures.
Figure 3: Comparing marketplaces
Source: Bloomberg, Columbia Threadneedle, as of 31 October 2025.
The US market also attracts a broader investor base, with participants including money managers, pension funds, hedge funds, banks and insurers – so there is no dominant pension scheme position. The diverse nature of this base means the risk of correlated sales from a concentrated investor base is much lower than in regional European ABS markets.
Additionally, there is a strong valuation argument for the US market: high grade US assets have typically demonstrated a yield advantage over comparable European and UK deals (Figure 4).
Figure 4: Spread differentials
Source: BofA Global Research, Markit, ICE Data Indices, Wells Fargo Securities Yield Book, as at 31 October 2025
The bottom line
The are a number of key benefits of using US securitised assets as a collateral waterfall management tool for European LDI investors. These are:
- Attractive risk-adjusted returns versus corporate credit.
- Lower volatility and decorrelation with traditional LDI assets.
- Robust liquidity underpinned by a diverse investor base.
LDI focus: Diversification benefits of US securitised credit
