April 8, 2022

Advantages of Agency MBS

Key Takeaways

  1. The Bloomberg US Aggregate Bond Index (the Agg) is off to its worst start to any year since the first quarter of 1980.
  2. As U.S. Treasury rates rose across tenors in the first quarter, longer-duration sectors of the Agg such as investment grade (IG) corporate bonds and Treasuries underperformed Agency MBS.
  3. Agency MBS have historically exhibited lower volatility than the Agg and its other components.
  4. Agency MBS have historically offered a more attractive yield per unit of duration ratio relative to the Agg, Treasuries and IG corporate bonds.
  5. Due to their shorter duration, Agency MBS have historically been one of the best-performing asset classes within the Agg during periods of rising rates.
  6. Agency MBS have historically displayed lower correlations to the S&P 500 Index relative to IG corporate bonds.