Residential mREITs: 2Q26 Book Value Preview: Agency mREITs Poised for Strong Economic Returns as MBS Spreads Tighten

Research evidence excerpt

Residential mREITs: 2Q26 Book Value Preview: Agency mREITs Poised for Strong Economic Returns as MBS Spreads Tighten

and the level of excess return (based on portfolio holdings). Based on MBS performance

QTD, this model estimates an average +6.9% economic return for sector, with a range

of +5.3% to +9.7%. Please see figure 2-3 for more details

Spreads, Rates and Volatilty

Rates and Vol: The 10-year Treasury yield increased approximately 15 bps during

Q2 2026, rising from roughly 4.32% at quarter-end 1Q26 to 4.47% at June 30,

while the 5-year Treasury yield increased approximately 28 bps. Although the

quarter experienced periods of elevated volatility, market conditions improved

materially into quarter-end as volatility declined from mid-quarter highs although

the episodic volatility spikes likely pressured hedge costs for the Agency mREITs.

Agency MBS and MSR were among the strongest-performing residential

mortgage assets during the quarter. Current-coupon Agency MBS spreads

tightened materially from quarter-end levels, generating positive excess returns

that more than offset the modest rise in Treasury yields. Higher coupon MBS

(5.5%-6.5%) remained particularly attractive given favorable carry and wider

spread profiles. MSR holdings likely benefited from the back-up in rates and slower

prepayment expectations.

Non-Agency Spreads Residential credit markets remained constructive during

the quarter. Non-QM fundamentals also remained stable, supported by contained

realized losses and continued securitization activity; however, late-quarter

execution softened modestly as investors absorbed a heavy wave of new issuance,

with several AAA non-QM transactions pricing near the wider end of recent

ranges. CRT spreads tightened approximately 25 bps led by the 2021-2024