Andrew Hsu, a DoubleLine Portfolio Manager who trades and constructs portfolios from nearly all major sectors of the securitized asset universe, explains on The Sherman Show the basics of this market and its revisions in the wake of the present economic crisis. In response to the economic shock of the government-ordered COVID 19 lockdowns, as Mr. Hsu explains, the Federal Reserve implemented asset purchases and other measures which supported not only investment-grade corporate bonds but in some cases below-IG corporate securities. Fed support of securitized assets, aka structured product, has been limited to bonds rated AAA, whether in Agency mortgage-backed securities (Agency MBS), which by definition enjoy principal guarantees by the U.S. government, or private-label securitizations of credits such as auto loans, student loans, credit card receivables and other cash flows in addition to residential and commercial mortgages. Thus below AAA, especially in the mezzanine/high yield areas, of structured product, investors expect high loss severities and so buyers want significant discounts to par. This episode of The Sherman Show, hosted by DoubleLine’s Jeffrey Sherman and Samuel Lau, was recorded on April 16, 2020.
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