Securitization Weekly Overview: Defensive Carry Now, Duration Later

Research evidence excerpt

Securitization Weekly Overview: Defensive Carry Now, Duration Later

Defensive Carry Now, Duration Later

Seasonal risk weakness appears to be arriving

The market backdrop has shifted meaningfully over the past several weeks as both rate

and spread risks have begun to re-emerge simultaneously. Escalating tensions

surrounding the Iran conflict are contributing to higher oil prices, renewed inflation

concerns, and rising Treasury term premium, while the possibility of additional military

escalation creates the risk of further increases in rate volatility. At the same time, heavy

hyperscaler-related debt issuance has become the dominant supply story in fixed

income, weighing on IG corporate valuations and putting upward pressure on both rates

and credit spreads. While securitized product technicals remain relatively healthy, we

believe the margin for error is becoming thinner as markets enter the historically weaker

late-summer period for risk assets.

Securitized issuance remains approximately 20% ahead of last year's pace on a gross

basis (Exhibit 1), though forward calendars suggest a slower second-half issuance

environment. Against this backdrop, HY CDX (Exhibit 2) and MOVE (Exhibit 3) appear to

be turning higher following their spring retracement, while Agency MBS spreads have

begun widening alongside rate volatility (Exhibit 4). The key difference versus the

March-April risk episode is that investors increasingly appear to be pricing a more

persistent geopolitical and inflation backdrop. We continue to believe securitized

products can outperform during this period, but increasingly through relative value, carry,

and structural advantages rather than broad spread compression.

Exhibit 1: FY and YTD 2025 and 2026 gross and net issuance, by sector