Bearish
🤖 80%
US Mortgage Rates Surge to Highest Since August, Squeezing Homebuyers and Lifting Bond Yields
Rising mortgage rates reduce the value of existing mortgage-backed securities because homeowners are less likely to refinance, extending the duration of the MBS and increasing interest rate risk. Additionally, higher rates depress MBS prices.
Catalysts
- ▼ Rising mortgage rates reducing prepayment speeds
- ▼ Higher Treasury yields lifting all bond yields
Risk Factors
- ▲ Stabilizing Treasury yields
- ▲ Fed restarts MBS purchases
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What are mortgage-backed securities (MBS)?
MBS are bonds that represent claims on the cash flows from pools of mortgage loans. They are sensitive to interest rates and prepayment risk. ETFs like MBB provide exposure to agency MBS.
Why is MBB bearish when mortgage rates rise?
Higher mortgage rates extend the effective duration of MBS because fewer borrowers refinance, making the bonds more sensitive to further rate increases, which pushes prices down.