What Trump’s push into mortgage bonds could mean for income investors
President Donald Trump ‘s push into mortgage bonds is good news for investors holding the assets, according to fixed income strategists. Earlier this month, the president directed Fannie Mae and Freddie Mac to purchase up to $200 billion in agency mortgage-backed securities, claiming the move would bring down mortgage rates. Investors immediately reacted to the news, snapping up the securities. “You have more demand and that essentially moves up the price of your holding,” said Luis Alvarado, global fixed income strategist at Wells Fargo Investment Institute. “It was definitely a positive.” In fact, spreads on agency mortgage-backed securities compressed by nearly 20 basis points to Treasurys in a 24-hour period, said Leslie Falconio, head of taxable fixed income strategy in UBS Americas’ chief investment office. Credit spreads represent the risk premium, or additional yield, that investors receive for taking on risk. When spreads tighten, investors get less compensation for that risk. “The favorable supply technicals will likely keep mortgage spread in a tight range; however, we do not foresee continued outperformance in the near term,” Falconio wrote in a recent note. That’s because many money managers and institutional investors were overweight agency mortgage-backed securities due to their compelling relative value versus investment grade corporate bonds prior to the announcement. Now, those investors may want to take some profits, she said. ‘An appetizer to the main course?’ Alvarado said he’s liked agency mortgage-backed securities for their relative value since June 2024. While the bonds have gotten more expensive, he’s sticking with them. Yields remain attractive and they are considered a relatively safer asset than investment-grade corporates since they are backed by the government, he said. He called Trump’s move a positive one within a much bigger story. “This is just the beginning — more to come,” he said. “If you have [a] directive from the administration wanting to incentivize this area of the market, it just makes your bonds appreciate more.” MBB 1Y mountain iShares MBS ETF one-year performance Falconio also wonders if Trump’s move on mortgages may not be his last. “It … makes you wonder really what could be on deck; is this just an appetizer to the main course?” she said. “This affordability issue has been such on the forefront of policy that it’s something where there could be other measures down the road which positively impact the sector as well,” Falconio added. That is one of the reasons she still likes agency mortgage-backed securities as part of a balanced portfolio. Further, the securities don’t have much correlation to the equity market, she said. While mortgage-backed securities aren’t as inexpensive as they once were, nothing is cheap in the fixed income market right now, she added. “Most of the total return in 2026, whether it’s investment grade corporates or agency MBS, is going to be income driven,” Falconio said. “Compounding income — that’s really going to be the key driver.”
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