The edge that lets Barings play offence on yield when everyone else is running for the hills

This interview was filmed 13th May, 2026.

The film The Big Short centres on a group of contrarian investors who foresaw the 2008 US housing collapse, uncovering widespread fraud in the subprime mortgage industry (...and by betting against the housing market, they made billions while the global economy crashed.)

Cut to 2026, and I'm speaking to Ashley Burtenshaw, senior portfolio manager at Barings Asset-Based Finance Australia, for our Income Series. When I ask why a $2 trillion market is overlooked by so many income investors, he refers to the seminal film almost immediately. The shadow of the GFC is long.

For this reason, alongside its perceived complexity and lingering concerns about rating agency failures, Australia's residential mortgage-backed securities (RMBS) market remains underutilised, despite its long history and structural role in the financial system.

Regardless, Burtenshaw points to a 30-year track record, dating back well before the GFC, of no RMBS defaults in Australia.

In the video above, Burtenshaw explains how in a higher-for-longer rate environment, Barings focuses on floating-rate RMBS - that is, allowing income to rise directly in line with rate increases - and how their data-driven approach underpins a strategy of “playing offence when others play defence.”

What rising rates actually mean

With the RBA having raised rates three times already in 2026, the higher-for-longer environment is shaping where income investors are looking. For Burtenshaw, the structure of RMBS makes this environment an attractive feature.

"What we invest in is floating-rate bonds. So as the rate goes up, your return goes up. So each month if we get a rate rise, that rate rise is reflected in your returns."

This means that if the running yield sits at 6% and the RBA moves up by 25 basis points, investors see 6.25% the following month. 

This is in contrast to term deposits, where locking in for 90 days in a rising rate environment means leaving money on the table.

"If you're thinking about TDs, rates are going up and you've locked in for 90 days, you're losing as the rates go up,” says Burtenshaw.

He adds "the odds or the returns are stacked in favour of the bank. It's like the casino. The house always wins."

Is mortgage stress as bad as it looks?

Arrears data and headlines about mortgage stress are making a lot of investors nervous but Burtenshaw's blunt claim is that “it's overstated”.

The Barings team tracks millions of data points across hundreds of thousands of individual loans each month, drawn from banks and non-banks writing residential mortgages across the country. This granularity, he argues, gives them a different vantage point to most.

"Data breed certainty, and with that certainty, that gives you conviction in your investment decisions."

More importantly, it shapes when they act and when they don't. "With that data, it allows us to play offence when others tend to play defence when they're running for the hills. And the opposite also holds true."

The key indicators Barings watches are the financial health of the overall system, unemployment trends, repayment behaviour (are borrowers ahead or behind?), and loan-to-value ratios.

On the structural side, Burtenshaw is confident the bonds themselves are built to absorb pressure. "These bonds that we invest in are over engineered. They can bend, but they're very, very difficult to break."

Where stress would actually show up

The macro risk Burtenshaw watches most closely is China. A significant shock there could spike Australian unemployment fast enough to create real uncertainty across asset classes.

At the loan level, the red flag he monitors is something borrowed from the lessons of the US mortgage crisis - early payment default.

In Australia, first payment default - where a borrower takes out a mortgage and misses the very first repayment - has virtually no history. But loans that fall into arrears within the first 12 to 24 months are tracked closely as a leading indicator of system stress.

"If that starts to rise, then that's another key indicator to how the market might underperform expectations." he says.

Where capital is going right now

With liquid public markets well-covered by global players, Barings is currently directing capital toward the less liquid segments of the RMBS market, aiming to capture higher premiums for illiquidity.

"We're getting an increased premium and increased return for that illiquidity, but for specialists like ourselves, we actually get liquidity in those buckets," Burtenshaw says. 

"We're actually able to harvest a much higher risk adjusted return...So it's a nice blend of profiles."

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