Securitised Income: Outlook 2026
December 2025 | Chien Chung Chen
One question on the minds of investors is the potential weakening of the US consumer and the effects on mortgage-backed securities (MBS).
While we are seeing signs of weakening in labour markets as well as delinquency levels, it should be taken in the context that post-Covid, these levels were artificially low due to fiscal stimulus and the availability of assistance programs such as loan forbearance. We are seeing the effects on weaker borrowers, such as subprime auto loans, and little to no impact on sectors such as residential mortgages.
The homeowners are typically stronger borrowers, and we have not seen much deterioration in mortgage credit as mortgage foreclosures are still near multi-decade lows. This is not surprising, given the run-up in housing values as well as equity markets, resulting in all-time highs in household wealth.
While we have not yet seen weakness in residential mortgages, we believe MBS is well-positioned for any weakening in macroeconomic conditions, especially when most of our portfolio is invested in seasoned mortgages, which have experienced significant home price appreciation, resulting in low loan-to-values on the mortgages.
2025 dominated by geopolitical risks
Looking back at 2025, we believe that geopolitical risks were higher than most investors were expecting. From global trade wars to actual wars, there was no shortage of events that impacted financial markets. We don’t see an abatement of market-moving events as global tensions remain high.
In 2026, we look to build a robust portfolio with attractive yields that will withstand the heightened event risks in this current environment. We believe that the underlying cash flows in the securities we own will not be impacted severely by exogenous events.
Credit spreads are on the tighter end going into 2026
Credit spreads, especially in US corporates, are currently on the tighter end of the historical range. In US Residential MBS (RMBS), spreads are still wider than they were before the announcement of the tariffs in April. In particular, the seasoned non-agency RMBS that comprise the majority of our strategy look attractive.
Given the attractive relative value of US RMBS versus other credit sectors, we feel that there is higher potential for spread tightening in the types of securities we hold in 2026, thereby increasing the return potential due to capital gains in addition to the current yield.
Chien-Chung Chen is an Investment Director in the Securitised Income team at GAM Investments.