Hello, welcome back to the latest addition of The Weekly Fix. I am Teri Savage a Senior Trader for RBC BlueBay focusing on the securitized sectors.

Over the last three months, mortgage-backed securities (MBS) and housing finance sectors have navigated a macro environment characterized by more geopolitical risks, sticky inflation data, and once again, a repricing of Federal Reserve rate expectations.

The rates and mortgage market have shown more volatility in this shifting backdrop, but despite the headwinds, securitized sectors have been resilient in the face of increased uncertainty. As rates have sold off past key support levels, we have seen steady demand in securitized sectors. Yields have hit levels which we haven’t seen in quite some time and with this, demand has been strong. Also, shorter duration securities have traded well, these assets are in high demand, given increased rate uncertainty.

Here are the 3 key takeaways from the trailing 90 days:

1. First, from a total return perspective, Agency mortgages have steadily outperformed U.S. Treasuries over the last 3 months (Source: Barclays Bloomberg index as of 5.5.26). MBS outperformance was largely driven by favorable market technicals and stable spreads, proving that mortgages remain a vital defensive anchor for fixed-income portfolios during periods of broader macro uncertainty.

2. Second, as housing affordability remains a key challenge for the U.S. and the administration, the 30-yr mortgage rate remains a key focal point. Looking at the 30-yr mortgage rate, we saw a distinct inflection point over the last 3 months. The 30-yr rate briefly hit 6% in early March but as rates have sold off, the 30-yr rate has edged up just above 6.5%. This upward move in rates reflects the broader "bear flattening" of the Treasury curve, as strong first quarter GDP data and persistent energy shocks caused the market to transition to a "higher-for-longer" narrative regarding monetary policy. And with this, financial markets are now pricing in a higher probability that the Federal Reserve will raise interest rates by the end of the year.

3. Lastly, the underlying technicals of the market remain exceptionally robust. Year to date, agency mortgage issuance is up over 30% year-over-year, demonstrating strong liquidity and robust trading volumes (Source: SIFMA as of 5.5.26). Net supply remains relatively contained as the mini refinancing wave has essentially ended and prepayments have stabilized. Even though mortgage spreads have tightened, they remain an attractive alternative to corporate credit, which has also tightened but faces heavy supply in the future. As a high-quality government backed asset class with minimal credit risk, agency mortgages present a highly compelling investment opportunity.

To wrap up, while interest rate volatility has excess returns relatively flat over the last 90 days, the mortgage market has successfully demonstrated its structural strengths by providing spread stability, high credit quality, and superior liquidity relative to other fixed-income sectors.

Thank you for your attention and good luck navigating the markets ahead!