The market difficulties of 2025, driven by federal trade policies and a prolonged government shutdown, tested fixed-income investors' confidence in the U.S. economy. Their portfolio preferences, however, are steadfast.
Investors expect economic growth to start accelerating this month and continue through April, as consumers benefit from tax cuts. That period of growth is likely to present attractive yield opportunities, particularly within the consumer asset-backed securities (ABS) sectors, says Clayton Triick, head of portfolio management and public strategies at Angel Oak Capital Advisors.
We're seeing better opportunities for active strategies.
"There are opportunities outside the [equity] benchmark [sectors] and on the fixed income side, even if equity is upstretched," Triick said.
Angel Oak Capital Advisors have been favoring consumer ABS sectors since early 2023 and agency RMBS since mid-2023, observing valuations at the BBB, BB and A ratings levels that had been a lot wider than levels seen in 2021.
"Everyone was complaining about fixed-income yields [staying] between one and four percent for a decade," Triick said. "Now we're seeing better opportunities for active strategies."
When comparing ABS spreads from December 2025 to tight levels seen in 2021, agency RMBS and 'A' non-qualified mortgage spreads were 80 basis points, according to the company's 2026 outlook. Spreads on BBB-rated auto and consumer sectors were at 57 and 110, respectively, compared with December 2025's levels.
Angel Oak has been driving returns mainly by reinvesting income from high yields, according to the 2026 outlook, and the firm says it has plenty of incentive to maintain that strategy for 2026.
Even after the Federal Reserve cuts of 2025, the yield spread between U.S. investment grade bonds and S&P 500 earnings were at around 150 basis points, making it a favorable time to invest in bonds, according to Angel Oak's outlook.
Consumers could lose steam
There have been many cycles when consumer resilience provided a respite to shaky markets. Should the economy's early burst of momentum materialize through the first quarter, however, Anel Oak is not expecting it to continue throughout 2026.
"You could see a little bit of [an] increasing GDP early next year from the fiscal side," Triick said. "But the momentum in the economy does not seem to be picking up, in our view.
That view also echoes consumer-related readings from 2025, especially from the second quarter when employment grew at a slower rate, and weakness in real consumer spending followed later in the year.
In December 2025, non-farm payrolls grew by 50,000, weaker than economists expected, which translated to employment growth of 4.4%, according to the Bureau of Labor Statistics. Consumer spending grew 0.5% for both October and November, and slightly outstripped personal income, which grew at 0.1% and 0.3% in October and November, respectively.
The momentum in the economy does not seem to be picking up, in our view.
These data releases suggest that the so-called K-shaped U.S. economy—where different sectors of the economy recover at different rates following a downturn, creating divergent trendlines on a line graph—is short-lived, according to Angel Oak.
"Early signs of convergence between consumer spending and employment weakness are emerging," according to the outlook.
Commercial MBS
Yet consumer-driven dynamics are just one aspect of Angel Oak's approach to the new year, which includes incorporating plenty of agency commercial mortgage-backed securities (CMBS).
Without the pre-payment option, typically, the assets are oddly convex, Triick said.
"Because of that convexity, premiums come down," Triick said. "We've kind of rotated back to own a little bit of those."
Among private-label CMBS, Angel Oak focused on primary deals that came onto the market early to mid-2024, lured in by strong underwriting practices among the underlying loan originators, Triick said.
Because of that convexity, [CMBS] premiums come down.
In the 2025 vintage, however, the firm pulled back because of inadequate risk-return ratios, he said. The firm has also avoided buying distressed assets, or assets in the office commercial sector.
Also, while the data centers have drawn a lot of interest from the credit markets, Angel Oak, for its part finds that spreads are not very wide on bonds collateralized by data center revenue.
As for debt tied to single-asset, single-borrower properties, the sector has tough provisions, where the debt becomes callable in two years.
If an investor were buying a SASB asset on an attractive spread, and the market recognized its value and drove up the price, then there would not be much price appreciation after that, Triick explained.
