The Basis Is Mid: Agency MBS Weekly | North America

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M

Idea

August 14, 2026 09:33 PM GMT

Morgan Stanley & Co. LLC

Agency MBS Weekly | North America

Jay Bacow

Strategist

The Basis Is Mid

Janie Xue

Strategist

We're staying low key for the rest of summer. Until mortgages

move with a change in vol, Fed pricing, or demand technicals,

your strategists are likely to go touch grass on summer break.

Market Recap

2Q26 Bank Data: Agency Assets -$16bn HTM, +28bn

Key Takeaways

AFS, +7bn Trading

Our base case for mortgages now is relatively snug spreads in a relatively low vol

Buy CLO AAAs vs. CMO Floaters, No Cap

environment, with reasonable carry but less room for spread tightening

Latest Weeklies

Removing hikes from the market could take us toward lower vol, similar to 2019,

Appendix

but we still have concerns that we could be in a structurally higher vol regime

We think spreads could tighten if GSE demand picks up, market pricing moves

toward cuts and increases bank demand, or credit spreads retest tights

But we would turn bearish if more hikes were priced, the balance sheet task force

FNCL

G2SF

FNCI

Specs

2.0

2.5

We stay neutral, keep up-in coupon and spec risk on, and point out Ginnie

3.0

floaters look reasonably attractive as a mortgage expression

3.5

4.0

4.5

Short

Long

5.0

Short

Long

5.5

6.0

Long

is more hawkish than expectations, or credit widens on AI-related supply

6.5

Basis

Short

Source: Morgan Stanley Research

In terms of securitized, floating-rate exposure, we think CLO AAAs are

Exhibit 1:

more attractive than CMO floaters right now, but CMO floaters are still relatively

cheap as a mortgage expression

bp

NI CLO AAA - Conv. Floater Basis (RS)

Conv. Floater DM

BSL CLO AAA DM

250

200

150

100

50

0

Jul-26

Mar-26

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Jul-22

Nov-22

Mar-22

Jul-21

Source: SNL, AlphaWise Web Intelligence, FFIEC

Nov-21

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Jul-20

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Jul-19

Nov-19

Mar-19

-50

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