2026 Mid-Year Outlook: onwards and sideways

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2026 Mid-Year Outlook: onwards and sideways

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Agency MBS Weekly

2026 Mid-Year Outlook: onwards and

sideways

Mid-Year Outlook: onwards and sideways 26 June 2026

2026 thus far has been full of surprises, but we expect the second half will bring more Securitized Products Strategy

stability via rangebound rates and spreads and an improving geopolitical picture. The United States

expected bear flattening (2 hikes in est. in 2026), is likely to bring some challenges Jeana Curro

particularly for levered investors and CMO creation. However, an anchored long end MBS Strategist

should imply some stability in prepayments too. All in, MBS spreads are likely to stay BofAS+1 646 855 9135

rangebound. Valuations are tight but carry keeps MBS in demand. In this outlook, we jeana.curro@bofa.com

first review 1H key drivers. Next we delve into the key themes for 2H26: policy, Chris Flanagan

uncertainty and gradual change. We then highlight key positioning ideas. With stable FI/MBS/CLOBofAS Strategist

rates and spreads expected, we think there could be more value in finding high carry +1 646 855 6119

christopher.flanagan@bofa.com

opportunities (production coupon pools) and positioning for a higher for longer Fed

Ge Chu, CFA

(CMO floaters). We lastly present the case that the technicals and fundamentals are still MBS Strategist

supportive, however we still see policy changes as the greatest risk. BofAS

+1 646 855 7147

ge.chu@bofa.com

Prepayment outlook: Conditional slow speeds vs Ko-Hsiang Kao

unconditional rising risk MBSBofASStrategist

Prepayment speeds thus far this year have remained contained amid the higher-rate +1 646 855 9177 ko-hsiang.kao@bofa.com

environment. However, we think the risk scenarios – notably unexpected rallies—are