Jeffrey Katz: Why Securitized Credit Matters as Markets Face Volatility

Despite escalating global volatility—from geopolitical tensions to AI-driven market shifts—securitized credit has remained remarkably stable, delivering consistent income and acting as a true portfolio stabilizer. Jeffrey Katz, Managing Director of Fixed Income at TCW, argues that securitized assets like mortgages, auto loans, and commercial real estate debt are not just a niche product but a core diversification tool, offering higher income per unit of risk and near-zero correlation to stocks. He debunks the myth that securitized credit is inherently risky, emphasizing the transparency and structural protections built into the asset class—especially when investors choose senior tranches (AAA-rated) that can withstand four to five times the expected default rates. With $14 trillion in investable assets and a flexible structure allowing exposure to both floating and fixed rates, securitized credit offers tactical flexibility amid Fed uncertainty and long-term structural value. The real risk, Katz warns, lies not in the asset class itself but in overexposure to lower-rated, consumer-focused tranches during potential demand destruction—though even that risk can be mitigated by moving up the capital structure.