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Mortgage Bonds Outshine Corporates in Fearful Markets
22 Mar
Summary
- Mortgage bonds offer better performance than US corporate debt during market fear.
- Fannie Mae and Freddie Mac provide additional support to mortgage bonds.
- Specified pools protect investors against higher prepayment speeds in falling rates.
Mortgage bonds are demonstrating a notable resilience, often outperforming US high-grade corporate debt in periods of increased investor apprehension. This trend was highlighted by Spencer Rogers, a strategist at Goldman Sachs, in recent commentary.
The debt's current strength is significantly influenced by the backing of Fannie Mae and Freddie Mac. This support was amplified in January when US President Donald Trump issued a directive for these entities to acquire an additional $200 billion of mortgage bonds.
Rogers suggests that investors might benefit from examining mortgage bonds as rates potentially decline again. Specifically, the selection of specified pools designed to resist faster prepayment speeds could allow investors to retain their cashflows for extended durations in a falling rate environment.
