Agency MBS Weekly: Turning tactical basis neutral, highlighting premium specs & revising demand ests

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Agency MBS Weekly: Turning tactical basis neutral, highlighting premium specs & revising demand ests

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Agency MBS Weekly

Turning tactical basis neutral, highlighting

premium specs & revising demand ests

Commentary: back to basis neutral on range breakout 15 May 2026 Corrected

Uncertainty appears more elevated in the fixed income markets, largely assisted by the Securitized Products Strategy

prolongation of the Iran war as tensions escalate and peace talks lose steam. Add to United States

that, fairly strong economic data signal higher inflation and a heated economy, likely Jeana Curro

keeping the Fed on hold or even hiking this year. Moreover, rates have skyrocketed with MBS Strategist

the 10 year now exceeding 4.5% (last 4.6%), meanwhile mortgages have (almost BofAS+1 646 855 9135

surprisingly) stayed steady, in line with rate volatility. As such, the current coupon basis jeana.curro@bofa.com

is now roughly 6bps rich on our regression model which accounts for current levels of Chris Flanagan

rates and vol. Putting all of this together, we are turning tactical basis neutral at FI/MBS/CLOBofAS Strategist

114bps (previously overweight). We still anticipate mortgages are likely to outperform +1 646 855 6119

christopher.flanagan@bofa.com

upon eventual conclusion of the war and a refocus on affordability, however the timing

Ge Chu, CFA

seems far less immediate than we originally expected. Moreover, higher rates present a MBS Strategist

risk that spreads could widen near term. BofAS

+1 646 855 7147

ge.chu@bofa.com

Premium specs: call protection may be finally worth a look Ko-Hsiang Kao

With rates still elevated and the most recent speed prints slow and benign, investor MBS Strategist

BofAS

concern around near-term prepayment risk has continued to ease.