Figure 1: Aggregate Yield Against Credit Rating

Aggregate Yield Against Credit Rating

What is Structured Credit

Structured credit involves the packaging of cash flows from different sources including mortgages, credit cards, auto loans, aircraft leases, corporate loans and other types of receivables into marketable securities.  These securities offer many benefits to fixed income investors who are seeking to diversify their traditional unsecured credit risk exposure and source alternative forms of income and total return.  Some of these benefits include degrees of structural protections such as subordination, over-collateralization and excess spread.

Why Invest in Structured Credit?


We view structured credit as an attractive alternative to traditional unsecured credit.  The sector, which varies greatly across collateral types, can offer investors diversification benefits, higher ratings, predicable cash flows and in some cases, lower interest rate sensitivity.  Broadly speaking, we maintain fundamentals remain sound across the structured credit market, where the US consumer’s balance sheet is strong, incomes are rising and unemployment sits near all-time lows.  Moreover, the floating-rate features of some securitizations benefit from a “higher for longer” policy environment.

In the mortgage market, forced selling by banks and the FDIC has driven spreads to near historical wides while commercial real estate has been tainted by concerns over office properties. It is worth noting that office-related financing accounts for less than 20% of commercial real estate debt. Even within this sector, certain properties are able to retain tenants and sustain rents. Outside of the office sector, our research indicates fundamentals remain very strong. Continued growth in e-commerce is driving demand for warehouse space while higher mortgage rates are driving demand in the multi-family sector. Accordingly, we believe opportunity exists to take advantage of the considerable yield and total return potential.

Key Takeaways for Investors

  • High quality structured credit spreads are trading at or near historical wides and we believe absolute yield levels are very compelling;
  • Quantitative Tightening (QT) and FDIC selling from its acquisition of failed banks is driving spreads wider, particularly for residential mortgage-backed securities;
  • Higher interest rate volatility is weighing on the sector in the near-term;
  • The shift to remote work has led to lower values for office properties; however, office properties account for less than 20% of outstanding commercial real estate debt;[1]
  • Select high quality office space continues to retain its value;
  • We see significant opportunity in multi-family and warehouse space; and
  • Residential mortgage credit, including credit risk transfer securities, are enjoying upgrades as they de-lever over time.


[1]. Source: Moody’s, as cited in Reuters, “Office CRE in US at risk from rising interest rates, work from home”, June 20, 2023.

Why MacKay Shields?


MacKay Shields has deep expertise in the structured credit markets and maintains it is uniquely positioned to capitalize on market opportunities.  The team operates with a disciplined top-down and bottom-up investment process.  For more information on MacKay Shields’ structured credit capabilities, please reach out to


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