With more than $63 trillion of bonds outstanding, the U.S. fixed income market is the largest in the world, representing roughly 40% of the global bond market. Yet despite its immense size and importance, much of the market remains unfamiliar to investors.
When most investors think about fixed income, U.S. Treasuries are typically the first thing that comes to mind. As the single largest debt issuer in the world, that's a reasonable starting point. But fixed income is far more than government debt. It is a vast ecosystem of securities, issuers, structures, and risk profiles that spans everything from sovereign borrowers to consumers, corporations, and specialized assets.
As investors become more familiar with the asset class, the Bloomberg U.S. Aggregate Bond Index, commonly known as the "Agg," often becomes the next frame of reference. Widely viewed as the benchmark for the U.S. bond market, the Agg provides broad exposure to investment-grade taxable bonds, including Treasuries, agency securities, mortgage-backed securities, and corporate bonds. However, it captures only a portion of the investable fixed income universe, excluding large segments such as high yield bonds, municipal bonds, bank loans, private credit, and many structured credit sectors.
The Agg is also market-value weighted, meaning the largest borrowers receive the largest allocations. In equities, market-cap weighting rewards success by increasing exposure to companies whose value has grown. In fixed income, however, market-value weighting increases exposure to issuers that have borrowed the most. As a result, the index is heavily concentrated in U.S. Treasuries, which account for roughly 45% of the benchmark today. While this methodology accurately reflects the size of the bond market, it can also obscure many of the opportunities that exist beyond government debt.
Beyond Treasuries, most investors are familiar with corporate bonds and mortgage-backed securities. Yet the fixed income landscape extends much further. Within mortgages alone, investors can access agency pass-throughs, residential mortgage-backed securities, commercial mortgage-backed securities, collateralized mortgage obligations (CMOs), specified pools, and a host of other specialized structures. As the market becomes more nuanced, opportunities for active management and security selection become increasingly important.
One of the largest and often least familiar areas of the market is structured credit, particularly asset-backed securities (ABS). Despite representing a substantial and highly diversified segment of fixed income, ABS accounts for only a small portion of the Agg. This limited representation stands in stark contrast to the sector's breadth and the opportunities it can offer investors willing to look beyond traditional benchmark allocations.
Asset-backed securities are fixed-income investments backed by pools of financial assets. Rather than lending to a single borrower, investors receive cash flows generated by a diversified pool of underlying assets. This structure allows investors to gain exposure to a broad range of consumer and corporate credit through a single security.
The most familiar ABS sectors are backed by auto loans, credit card receivables, and student loans. However, these represent only a fraction of the opportunity set. The market has evolved significantly over the past several decades and today includes an array of specialized asset classes tied to data centers, litigation finance, aircraft leasing, fiber networks, cell towers, rail assets, tax liens, music royalties, and many others.
While many of these sectors are relatively small on their own, collectively they form a broad and diversified investment universe. The underlying collateral is often tied to essential economic activity, including consumer spending, transportation, education, communications, and data usage. As a result, ABS can provide unique cash flow characteristics and risk drivers that differ from those of traditional corporate bonds and mortgage-backed securities, creating opportunities for diversification and differentiated sources of return.
For investors seeking to broaden their understanding of fixed income, ABS offers a compelling reminder that some of the most interesting opportunities lie beyond the benchmark.
In our new series, Finding Value in Uncommon Places, we will venture beyond the traditional sectors that dominate fixed income benchmarks and explore specialized markets where active investors may uncover unique sources of return. We begin with litigation finance, an emerging ABS sector whose cash flows are tied to legal settlements and judgments rather than traditional consumer or corporate credit, making it one of the more distinctive opportunities within structured credit today.
All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.
Sources: FactSet and SIFMA U.S. Fixed Income Securities Outstanding. All data is as of 4Q25, except MBS and ABS, which are based on the latest available outstanding data (4Q21). Analysis: Manning & Napier.
The Bloomberg U.S. Aggregate Bond Index is an unmanaged, market-value weighted index of U.S. domestic investment-grade debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more.
