In the latest episode of our Global Perspectives podcast series, Portfolio Manager Nick Childs and Securitized Products Analyst Tom Polus discuss the reasons why they believe mortgage-backed securities have been sold off disproportionately, and if that might be a good thing going forward.

Key Takeaways

  • Concerns around excess supply – coupled with elevated interest rate volatility – have resulted in mortgage-backed securities (MBS) experiencing a disproportionate sell-off in 2022, relative to U.S. Treasuries.
  • In the event of an economic downturn, we believe MBS are well positioned due to their countercyclicality – they have no additional credit risk over U.S. Treasuries – and we believe the Federal Reserve is more likely to pause or stop quantitative tightening as economic conditions worsen, which would alleviate current supply concerns.
  • Following the sharp move up in mortgage rates, the makeup of the MBS Index differs greatly from the present mortgage market, and we therefore believe that maintaining an active approach in MBS is important, as disparities exist between various subsets of the investment universe.

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