Agency MBS Offer Attractive Yields Amid Market Dislocation

Agency mortgage-backed securities, backed by U.S. mortgage loans and guaranteed by agencies like Fannie Mae, Freddie Mac, or Ginnie Mae, historically offer excess returns over treasuries. Currently, agency mortgage bonds are trading at attractive spreads compared to investment-grade credit bonds due to excess supply in the market. The supply surplus stems from the Fed’s quantitative tightening, generating extra bonds monthly, and reduced mortgage purchases by U.S. banks. While spreads are wide now, expectations are for them to normalize over time, especially as bank buying is anticipated to increase in 2025. Investing in agency mortgages offers attractive yields while waiting for spreads to tighten.

Read more at Investing.com: Are Agency MBS Mispriced? Market Dislocation Creates Yield Opportunity