Structured Thoughts: US Securitized Markets Midyear Outlook
At a Glance
The desk argues that the overall resilience of the US economy is supporting a strong outlook for securitized markets, with 2023 issuance forecasted to reach $360 billion, driven by robust demand in esoteric asset-backed securities. Per the full note, Deutsche Bank’s research highlights a stable unemployment rate of 4.3% and anticipates the Federal Reserve keeping rates on hold, which provides a favorable backdrop for credit markets. This stability contrasts sharply with prevailing volatility in other sectors, reinforcing the positive sentiment for ABS issuance. Furthermore, the inclusion of AI-related investments signals potential opportunities in structured credit, warranting close attention from FX traders looking to navigate this environment.
Key Takeaways
- 01US economy shows resilience, targeting 2% growth despite geopolitical tensions and inflationary pressures.
- 02Full year ABS issuance forecast raised to $360 billion, largely driven by significant growth in esoteric asset-backed securities.
- 03Current unemployment projected to hold at 4.3%, supporting credit market trends.
- 04Federal Reserve expected to maintain a dovish stance, influencing investor sentiment.
Full Analysis
What the desk is arguing
The desk highlights a resilient US economy as a key driver for growth in securitized markets, particularly asset-backed securities (ABS). Per the full note, Deutsche Bank researchers provide a confident forecast of $360 billion in total issuance for the year, emphasizing the strength from esoteric ABS sectors.
The stability of economic indicators, such as a projected low unemployment rate of 4.3% and the Fed's intention to maintain interest rates, suggests a conducive environment for growth in structured credit. The early-year performance has been largely bolstered by strong supply in niche asset classes, contributing to a more optimistic outlook for the remainder of 2023.
Where it sits in our coverage
Our consensus target for the EUR/USD stands at 1.075, with a range from 1.04 to 1.12, as observed across various institutional forecasts. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk’s optimistic call aligns closely with jpmorgan while presenting a divergent view from bofa, which is positioned at the lower end of the forecast spectrum. This suggests that the current sentiment on the desk aligns with the upper bounds of market expectations.
How other firms see it
The outlook on securitized markets has its proponents among firms like jpmorgan, which share a bullish stance, while bofa presents a more cautious view, suggesting potential vulnerabilities in the market.
There are overlapping themes with FX dynamics, particularly the implications for EUR/USD as it seems to track underlying economic stability and Fed policy shifts. The market is recommended to monitor these linkages closely to leverage movements across the pairs effectively.
Market Implications
Traders should keep a close watch on the issuance trends of esoteric ABS while the Fed maintains its stance. A level around 1.075 in EUR/USD remains a key marker, alongside any developments in AI-related investments that could further influence market direction.
From the original
In the “Securitized Markets: Structured Thoughts” podcast series, Deutsche Bank research strategists discuss relevant themes across the US securitized and structured credit markets. In this episode the team discusses their mid-year outlook and surface key takeaways from the first