Where debt securitization fits into higher-for-longer rates

With the Federal Reserve keeping interest rates higher for longer, most types of loans will have higher rates for the foreseeable future. However, there is a secondary market for loans in the form of debt securitization, or the process of packaging debt to be sold as securities to a single investor. What does this mean for investors’ wallets and the broader US economy?

Structured Finance Association CEO Michael Bright breaks down debt securitization and how it impacts Americans caught up in higher for longer interest rates.

In terms of what this means for credit card rates, Bright states: “Without this, rates would be higher than they are right now, and they would be more volatile. If you don’t have the securitization industry and if you don’t have these types of bonds that can trade globally, you have something that’s called procyclicality with lending. That means when the economy is good, banks are very willing to lend; if the economy slows down a little bit, banks pull back quite a bit. You see a lot of volatility, not only in the rate itself but whether or not you can even actually access credit under older systems.”

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Editor’s note: This article was written by Nicholas Jacobino