US agency mortgage-backed securities (MBS) – fixed-income bonds where the underlying assets consist of a collection of home mortgages – represent an asset class segment that can provide investors with an attractive return, even in markets where official interest rates are rising gradually, as is the case in the US now.
Official US institutions – agencies such as Ginnie Mae, Freddie Mac and Fannie Mae – are frequent issuers of mortgage-backed securities and as a result, these issues are guaranteed by the US government and have a top AAA credit rating.
A yield spread over US Treasuries and the prepayment risk unique to MBS offer investors portfolio diversification benefits over other fixed-income segments.
Plans by US Republican lawmakers and the Trump administration to reform the government-backed mortgage companies Freddie Mac and Fannie Mae and market talk about the US Federal Reserve trimming its balance sheet, which has been swollen as a result of crisis-era asset purchases including MBS, have propelled the MBS segment into the headlines and caused investor concerns.
In this 30-minute webcast, John Carey, Head of the Structured Securities Team, discusses how recent political and monetary policy developments could impact the agency MBS segment. The moderator is investment specialist Katie Herr.
Recorded and written on 16 May 2017
This content was produced prior to the 1 June 2017 rebranding of BNP Paribas Investment Partners as BNP Paribas Asset Management, which also involved the incorporation of FFTW in the global fixed income investment team.