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Mortgage-backed securities: Priced for imperfection?
Head of U.S. Securitized Products John Kerschner and Portfolio Manager Nick Childs explain why they believe key risks are now largely priced in to fixed income markets, with selective areas – particularly mortgage-backed securities (MBS) – presenting an opportunity to provide favorable risk-adjusted returns.
27 Mar 2023
1 minute read
1 minute read
Key takeaways:
- Following an increase in yields and a widening of credit spreads, MBS are now pricing in a lot of bad news.
- While risks like interest rate volatility and supply concerns weighed on returns in 2022, we think the sell-off in MBS has been overdone.
- In our opinion, the additional income offered by MBS relative to U.S. Treasuries, combined with the potential for normalization of valuations, makes the asset class attractive from a valuation perspective.
Head of U.S. Securitized Products John Kerschner and Portfolio Manager Nick Childs explain why they believe key risks are now largely priced in to fixed income markets, with selective areas – particularly mortgage-backed securities (MBS) – presenting an opportunity to provide favorable risk-adjusted returns.
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Key takeaways:
- Following an increase in yields and a widening of credit spreads, MBS are now pricing in a lot of bad news.
- While risks like interest rate volatility and supply concerns weighed on returns in 2022, we think the sell-off in MBS has been overdone.
- In our opinion, the additional income offered by MBS relative to U.S. Treasuries, combined with the potential for normalization of valuations, makes the asset class attractive from a valuation perspective.