Securitised debt¹, for example, could act as a diversifier within the overall portfolio because it tends to be less correlated to equities and high-yield (HY) bonds⁴. Unlike equities and HY bonds⁴ which are more closely tied to corporate balance sheets, the underlying assets of securitised debt are mostly loans extended to individuals. This means tapping into the balance sheets of consumers.

As shown in the chart⁵, household savings have been on the rise, which could generate pent-up consumption demand. Consumption strength and declining household debt are positive for ABS².

Household savings and consumption⁵

^{5. Source: US Bureau of Economic Analysis, J.P. Morgan Asset Management, Eurostat, Office of National Statistics UK. Data reflect most recently available as of 30.06.2021.}

Moreover, extraordinary fiscal support for US consumers because of the global public health crisis could bode well for securitised assets such as consumer ABS, auto and personal loans². The reopening of economies, and return-to-the-office and related activities are supportive of CMBS².

Long-term demographic trends are leading to household formations, driving demand for housing and benefiting non-agency MBS, multifamily credit and single-family rentals².

Unlike corporate bonds, most ABS are secured by some type of collateral. They are also backed by different types of loans extended to many individual borrowers.

MBS also exhibited relatively lower volatility than individual fixed income sectors such as global investment-grade corporate and HY bonds⁴, as shown in the chart⁶. The securitisation market has also regained ground over the past decade.

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Yields and correlations of fixed income returns to equities⁶

6. Source: Barclays, Bloomberg Finance L.P., FactSet, ICE BofA Merrill Lynch, J.P. Morgan Economics Research, MSCI, J.P. Morgan Asset Management. Based on Bloomberg Barclays US Treasury (UST) Bellwether 2y & 10y (2y & 10y UST), Bloomberg Barclays Treasury Inflation-Protected Securities (TIPS), ICE BofAML Country Government (1-10y) (France, Germany, Japan & UK (1-10y)), Bloomberg Barclays US Aggregate, Credit – Investment Grade & High Yield (US Aggregate, IG & HY), Bloomberg Barclays US Floating Rate (US Floating Rate), Bloomberg Barclays US Aggregate Securitized – Mortgage-Backed Securities (US MBS), Bloomberg Barclays Pan-European High Yield (Europe HY), J.P. Morgan GBI-EM Global (Local EMD), J.P. Morgan EMBI Global (USD EMD), J.P.Morgan Asia Credit (JACI) (USD Asia Credit), J.P. Morgan Asia Credit (JACI) – High Yield (USD Asia HY), J.P. Morgan Asia Credit China Index (USD China offshore credit), J.P. Morgan CEMBI (USD EMD corporates), J.P. Morgan Asia Diversified (JADE) (Local Asia). *Correlations are based on 10-years of monthly returns. Yield is not guaranteed. Positive yield does not imply positive return. Indices may not include fees or operating expenses and are not available for actual investment. Data reflect most recently available as of 30.06.2021.