Just Hold On

Research evidence excerpt

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M

Idea

August 7, 2026 10:56 PM GMT

Morgan Stanley & Co. LLC

Agency MBS Weekly | North America

Jay Bacow

Strategist

Just Hold On

Janie Xue

Strategist

– we're going neutral. We've got our eyes on the Fed, banks

we're waiting to see. We find shifts in risk and reward, suddenly.

This week, we take off our underweight basis view, in addition to

adding FN 6/5 and G2/FN 4.5.

Table of Contents

Market Recap

July Prepay Speeds

July CMO Update: $35.3bn of Issuance

Key Takeaways

2Q26 REIT Update: REITs Net Add $6.6bn in Pools

We move to neutral basis from underweight in an improved macro backdrop,

and $1.4bn in ACMBS

though moves back towards pricing a Fed hike would still be challenging

Fed Balance Sheet Reform: More Shrinkage, Less

Bank portfolios added $14bn of agency securities in 2Q26; we think activity will

increase as the Fed path gains some clarity and regulatory changes continue

Tightening – Views on MBS

Latest Weeklies

Appendix

While likelihood of the Fed conducting MBS sales is low, we think the balance

sheet could be shrunk by $1.5tr in 2 years without substantial impact to markets

Otherwise, originator pullback could moderate immediate prepay risk in the

market, and conventional net issuance continues to be negative

Yen intervention impact is uncertain; JGB selloff reduces G2 yield-appeal for FX-

FNCL

G2SF

FNCI

Specs

2.0

hedged investors, but unhedged pensions may add to maintain portfolio weights

2.5

3.0

3.5

4.0

4.5

Short

Long

5.0

Short

Long

5.5

Long

6.0

6.5

Exhibit 1:

Basis

History of quarterly portfolio changes in agency securities

Conventional PT

Ginnie PT

CMOs

Source: Morgan Stanley Research

Total

$bn

575

500

425

350

275

200

125

50

(25)

(100)

(175)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 1Q 2Q

2026 2026

Source: SNL, AlphaWise Web Intelligence, FFIEC

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