Education (basics)
Asset-backed securitisation is a funding technique that allows the pooling of a large number of loans into a single financing vehicle, which then issues a number of different tranches of debt with varying seniority.
Education (basics)
IABs offer protection against inflationary pressures, making them a crucial allocation during times of high inflation, but also offering many other benefits too. Here we discuss how they work and why they’re considered a core portfolio holding.
Education (advanced)
Despite the current rise in mortgage arrears resulting from the adjustment to higher interest rates and inflation as monetary policy normalizes, we maintain confidence in the RMBS sector. These instruments usually offer more favorable returns and a consistent income stream compared to standard corporate bonds. Our preference is generally for the safer investment-grade tranches in RMBS transactions, offering lower risk than sub-investment grade options.
Education (basics)
Diversifying fixed income portfolios across different categories such as companies, industries, and countries helps reduce specific risks. Diversification not only lowers risk, but also enhances long-term portfolio performance, drawing on the theory introduced by Nobel laureate Harry Markowitz. A well-diversified bond portfolio can lead to smoother volatility, improved returns, and reduced risk in uncertain economic and market conditions.
Education (advanced)
Credit ratings are an indication of perceived risk. Each year S&P Global Ratings releases a global report that shows defaults as well as rating movements (upgrades and downgrades).
Education (advanced)
The Deputy Head of Research discusses strategies for maximizing returns in a fixed income portfolio through active trading, emphasizing the importance of understanding bond components, market conditions, and credit risk to enhance portfolio returns. The article highlights the importance of understanding the constituent parts of each bond, such as risk-free rates and credit spreads, and how they contribute to the bond's value. It also emphasizes the significance of considering factors like the shape of the risk-free curve and credit spreads when making buying and selling decisions. By combining knowledge of bond components, market conditions, and credit risk, investors can enhance their fixed income portfolio returns.
Education (advanced)
Assessing the performance of an RMBS transaction involves closely examining various factors, including rating performance, principal amortization, arrears evolution, weighted average loan-to-value ratio, and net losses on foreclosed loans, all of which can be tracked through monthly reports providing valuable insights on loan behavior; despite fluctuations in the residential housing loan market, Australian RMBS transactions have consistently exhibited strong performance, highlighting the resilience of these structures.
Education (advanced)
RMBS transactions are designed to offer a range of risks and returns to suit a number of different investors. This will go from the most senior tranche that has priority over cash flows and the lowest overall risk to the most junior tranche, with equity-like risks and rewards.
Education (basics)
Asset-backed securitisation is a funding technique that allows the pooling of a large number of loans into a single financing vehicle, which then issues a number of different tranches of debt with varying seniority.
Education (advanced)
Residential Mortgage Backed Securities are a popular choice for wholesale investors as they can choose the risk and return they seek and the securities offer a premium over similarly rated corporate bonds. Here we explore some basic features of these securities and outline what makes them different to vanilla corporate bonds.