Adding structure with securitized assets

Bottom line up top:

• With inflation somewhat softer, a sharper focus on employment is coming. The combination of moderating price pressures and emerging weakness in the labor market strengthens the case for a rate cut at this week's U.S. Federal Reserve meeting.

  Last week's releases of August inflation data for August reinforced that there's room for the Fed to begin cutting interest rates. The headline Consumer Price Index rose 0.4% for the month and 2.9% year-over-year, a modest pickup but broadly in line with expectations. Core CPI, which excludes the volatile food and energy components, increased 0.3% in August, with the year-over-year rate holding steady at July's 3.1% level. Crucially, shelter costs - a persistent driver of sticky inflation - decelerated from earlier in the year, and goods prices continued to soften. Meanwhile, the Producer Price Index fell 0.1% in August (Figure 1), a sign of waning cost pressures further up the supply chain. Overall, the latest CPI and PPI readings suggest inflation remains on track toward the Fed's 2% target.

  The employment numbers, in contrast, are stark and highlight the risks of overtight monetary policy: August delivered a scant 22,000 net new positions were added, while a massive downward revision showed the economy added 911,000 fewer payrolls than previously thought over the 12 months ended 31 Mar 2025. Additionally, first-time jobless claims jumped to 263,000, the highest tally since 2021 and well above the expected 231,000. This spike could mean companies may be pulling back on hiring amid economic uncertainty.

  In financial markets, U.S. Treasury yields have fallen in anticipation of imminent Fed action, and equities have rallied on the prospect of looser financial conditions. Credit spreads remain contained, reflecting investor confidence that rate cuts will extend the growth cycle rather than signal imminent recession. This backdrop creates attractive allocation opportunities across fixed income categories, including securitized assets.

Portfolio considerations

Securitized assets are an important sector of the Bloomberg U.S. Aggregate Bond Index, accounting for roughly 26% of its total market value. That said, within two categories of the securitized universe - commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) - many issues are excluded from the index due to their small size. Widening the opportunity set to include non-index securitized assets offers a way to seek additional yield and return potential. Mortgage-backed securities (MBS), ABS and CMBS are currently among the highest-yielding investment grade fixed income sectors, with yields between 5.4% and 5.9% as of 10 Sep 2025 (Figure 2).

In addition to yield, investors may wish to allocate to securitized credit given its lower rate volatility as a shorter-duration asset class, as well as its relative remoteness from tariff-related impacts and attractive risk-adjusted return profile. Securitized credit may also provide alpha opportunities for actively managed multisector fixed income portfolios. We see value in maintaining exposure to deeper credit investments correlated with the U.S. housing market and commercial ABS financing needs. Certain CMBS investments that appear poised to benefit from a turnaround in the commercial real estate market also look compelling.

Broadly, the CMBS market continues to recover from a challenging 2022 and 2023. Commercial real estate values have rebounded, and refinancing has proved easier in most property type subsectors, including retail, multifamily and industrial. Office space still faces challenges, a situation unlikely to improve much until supply and demand reach better balance.

Agency-issued MBS is a mainstay of the fixed income market, offering higher yields than Treasuries and stable prepayment rates. For some investors, this asset class may represent an optimal combination of credit, liquidity, spread and relative immunity from tariff impacts.

There's been explosive growth in the ABS universe since 2023, with issuance rising cumulatively by more than 50%. ABS is the most diversified securitized credit category, with dozens of collateral types and a choice of both investment grade and high yield exposures available. The ABS market also offers attractive risk-adjusted return potential with short and medium duration profiles compared to similarly rated corporate bonds. A wide range of deal and asset types, including whole business, digital infrastructure, consumer loans and esoteric credit, adds further appeal. Lastly, ABS generates additional income and may offer lower correlations to other assets in a broader fixed income portfolio.

Nuveen's Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

Regular meetings of the GIC lead to published outlooks that offer:

• macro and asset class views that gain consensus among our investors
• insights from thematic "deep dive" discussions by the GIC and guest experts (markets, risk, geopolitics, demographics, etc.)
• guidance on how to turn our insights into action via regular commentary and communications