Skip to main content


Audience for the document: Share Class: Language of the document:


Share Class: Language of the document:

Change Details

If you need to change your email address please contact us.
You are ready to start subscribing.
Get started by going to our products or insights section to follow what you're interested in.

Products Insights

GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

Other Literature

You have successfully subscribed.

Notify me by email when
regular data and commentary is available
exceptional commentary is available
new articles become available

Thank you for your continued interest

Please enter valid search characters

7 January 2021 / U.S. FIXED INCOME

Pockets of Value Still Exist in Securitized Credit

Securitized sectors also provide useful diversification benefits.

Key Insights

  • The securitized credit sectors offer pockets of relative value, particularly in areas that have not yet fully recovered from the selling pressure in March.
  • Securitized credit also provides diversification for a fixed income portfolio, including relatively low correlation with investment‑grade corporate credit.
  • We are positioning our exposure in securitized credit in striving to benefit from an expected robust economic upturn in 2021.

The securitized credit sectors offer pockets of relative value, particularly in areas that have not yet fully recovered from the selling pressure that swept financial markets at the onset of the coronavirus pandemic in March. Securitized credit, which includes commercial mortgage‑backed securities (CMBS), non‑agency residential mortgage‑backed securities (RMBS), asset‑backed securities (ABS), and collateralized loan obligations (CLOs), can also provide attractive diversification for a fixed income portfolio, including relatively low historical correlation1 with investment‑grade corporate credit. Relying on the research of our team of credit analysts, we have been finding opportunities in all four segments of securitized credit.

Credit Spreads Still Wide in Some Areas

Unlike investment‑grade corporate bonds, where credit spreads2 have almost completely recovered from their dramatic widening in March, portions of securitized credit still trade at spreads that are meaningfully wider than where they started the year. For example, at the end of December 2020, five‑year senior ABS backed by rental car revenue traded at 145 basis points (bp)3 over the swap rate,4 which was still 43 bp wider than at the beginning of 2020.5 Lower‑quality (BB/B rated) credit risk transfer (CRT)6 RMBS traded at spreads about 80 bp wider for the year. These relatively wide spreads demonstrate that potential areas of value still exist in securitized credit. In contrast, spreads on A rated corporate bonds were only 2 bp wider than at the start of 2020, according to J.P. Morgan data.

…we are confident that the attractive longer-term diversification properties of securitized credit remain intact.

Historically, securitized credit returns have had a relatively low correlation with investment‑grade corporate credit performance, so securitized credit has provided valuable diversifying characteristics for multi‑sector portfolios that typically have large allocations to corporates. Given the heavy weighting of corporate bonds in aggregate benchmarks, many multi‑sector portfolios usually are dominated by corporate credit risk.

However, many low‑correlation relationships between fixed income sectors broke down in March as market participants began to realize the broadly negative impact of the pandemic on economic growth. Liquidity disappeared, and leveraged market participants were forced to sell due to margin calls, leading to declines nearly across the board. Correlations between securitized credit and investment‑grade corporates have decreased since then, moving back toward their historical pattern, and we are confident that the attractive longer‑term diversification properties of securitized credit remain intact.

Supportive Environment for Securitized Credit

We are increasingly confident in a robust economic recovery in the second half of 2021, although the next few months will likely be challenging in terms of pandemic‑related restrictions weighing on growth. The Federal Reserve is likely to remain extremely accommodative for the foreseeable future, especially under its new flexible inflation‑targeting framework. This, effectively, will allow the central bank to keep rates at low levels even when inflation meaningfully increases above the 2% target. Under the Fed’s old policy framework, the central bank’s practice had been to raise rates in anticipation of future inflation solely due to a low unemployment rate.

In addition, while the size of a stimulus package depends on various factors, including the final composition of Congress after the November election and Georgia’s January 2021 Senate run‑off elections, we see a high probability of some amount of additional fiscal support coming down the pike. We believe that this macroeconomic environment could be supportive for taking advantage of selective opportunities in securitized credit. In addition, we expect a relatively low level of new securitized credit supply in 2021, providing technical support for the sector.

Positioning for Expected Medium‑Term Upturn

In light of this outlook for limited new securitized credit issuance next year, we are positioning our exposure in the sector in striving to benefit from the expected economic upturn well in advance because certain types of bonds could become difficult to source once the recovery begins in earnest. In general, we prefer single‑asset/single‑borrower (SASB) CMBS rather than CMBS deals that are backed by a number of properties and borrowers, known as conduits. SASB bonds typically have high levels of credit enhancement—support from the cash flow structure of the deal—and are more straightforward to analyze than debt backed by large pools of loans.

In SASB deals, we favor bonds backed by high‑quality leisure lodging assets because we believe that leisure travel will recover more quickly than business travel. We have been more cautious when investing in CMBS backed by certain types of retail properties, which are likely to experience continued pressure even when the economy recovers from the pandemic.

Some High‑Quality CLOs Attractive

We are also carefully analyzing high‑quality (AAA rated) CLOs,7 which generally have held up well through 2020. The most attractive bonds in this segment have resilient structures and ample credit enhancement that should allow them to endure a prolonged slump in the economy without experiencing credit issues. These CLOs tend to have meaningfully higher yields than corporate bonds with similar credit quality, and high‑quality CLOs have also generally held up better than corporates in risk‑off periods beginning with the global financial crisis of 2008–2009. We rely heavily on our credit analysts to examine new CLO issues and the managers of the underlying collateral and to negotiate the terms of new deals.

Value in ABS Backed by Automobile‑Related Collateral

In ABS, we have been finding opportunities in bonds backed by automobile‑related collateral, including subprime vehicle loans and rental car revenue. Automobile rental ABS is an interesting segment that experienced severe spread widening at the onset of the pandemic as investors aggressively sold travel‑related securities but then began to recover as the used‑car market boomed and some travelers rented vehicles rather than travel by air.

We also favor some whole business securitizations (WBS) from gyms and some restaurant chains that could benefit from an economic recovery. The collateral backing WBS is generally a first‑priority interest in a company’s primary revenue‑generating assets, often franchise fees and royalties.

Selective Opportunities in RMBS

While we are not finding as many pockets of value in RMBS because the housing market has been one of the few bright spots in 2020, we have been selectively adding some lower‑rated CRTs and bonds backed by nonqualified mortgages (loans that do not meet the criteria for purchase by Fannie Mae or Freddie Mac). We have also been using RMBS backed by prime jumbo loans (those that exceed the maximum principal size for purchase by Fannie Mae or Freddie Mac) and subordinated RMBS, in general, as a way to add yield.

Size of Fiscal Package Could Affect Recovery

The obvious risk to our positioning for a vigorous economic recovery in the second half of 2021 is that the expected contraction over the next few months is longer and deeper than expected. Delays or other problems with vaccine distribution could create this type of scenario. The fiscal relief package passed in late December 2020 should help boost the strength of the recovery later this year, and we are closely monitoring political sentiment toward additional fiscal spending as Washington, D.C., transitions to the Biden administration.


This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.  

It is not intended for distribution to retail investors in any jurisdiction.

USA—Issued in the USA by T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD, 21202, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only.

© 2021 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

Previous Article

5 January 2021 / VIDEO

2021 Global Market Outlook
Next Article


A Broader Tilt to Value

You are now leaving the T. Rowe Price website

T. Rowe Price is not responsible for the content of third party websites, including any performance data contained within them. Past performance cannot guarantee future results.